LENDLEASE GROUP — Interim / Quarterly Report 2020

Feb 19, 2020

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20 February 2020
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Lendlease Group Appendix 4D and 2020 Half Year Consolidated Financial Report

Lendlease Group today announced its results for the half year ended 31 December 2019. Attached is the Appendix 4D and Half Year Consolidated Financial Report.

ENDS

For further information, please contact:

Investors: Media: Justin McCarthy Stephen Ellaway Mob: +61 422 800 321 Mob: +61 417 851 287

Authorised for lodgement by the Lendlease Group Disclosure Committee

Lendlease Corporation Limited ABN 32 000 226 228 and 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

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Level 14, Tower Three, International Towers Sydney Exchange Place, 300 Barangaroo Avenue Barangaroo NSW 2000 Australia

Telephone +61 2 9236 6111 Facsimile +61 2 9252 2192 lendlease.com

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1 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Paya Lebar Quarter, Singapore

	2 /Lendlease Half Year Consolidated Financial Report December 2019 Directors’ Report / Lendlease Half Year Consolidated Financial Report	December 2019
	Directors’
	Report
		Table of Contents
		1. Directors	3
		2. Dividends/Distributions	3
		3. Events subsequent to Balance Date	3
		4. Lead Auditor’s Independence Declaration	3
		5. Rounding of	3
		6. Performance & Outlook	4
		Lead Auditor’s Independence Declaration
		under Section 307C of the_Corporations Act 2001_	18
		Financial Statements	19
		Steam Mill Lane, Darling Square, Sydney

3 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Directors’ Report

The Directors present their Report together with the Half Year Consolidated Financial Report of the consolidated entity, being Lendlease Corporation Limited (the Company) including its controlled entities and Lendlease Trust (together referred to as the Consolidated Entity or the Group), for the six months ended 31 December 2019 and the Auditor’s Report thereon.

1. Directors

The name of each person who has been a Director of the Company at any time between 1 July 2019 and the date of this Report are:

M J Ullmer, AO

Director since 2011 & Chairman since 2018

S B McCann

Chief Executive Officer since 2008 & Managing Director since 2009

2. Dividends/Distributions

An unfranked interim distribution of $169 million (December 2018: $68 million unfranked) has been approved by the Directors. The interim distribution comprising of an unfranked dividend of 22.1 cents from the Company and a trust distribution of 7.9 cents per unit from Lendlease Trust will be paid on 17 March 2020 (December 2018: 12.0 cents per unit from Lendlease Trust paid on 20 March 2019).

3. Events subsequent to Balance Date

There were no material events subsequent to the end of the financial reporting period.

C B Carter, AM

Director since 2012

P M Coffey

Director since 2017

D P Craig

Director since 2016

4. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

The Lead Auditor’s Independence Declaration is set out at the end of this report and forms part of the Directors’ Report for the six months ended 31 December 2019.

S B Dobbs

Director since 2015

(retired 20 November 2019)

J S Hemstritch

Director since 2011

E M Proust, AO

Director since 2018

N M Wakefield Evans

5. Rounding off

The Group is of a kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and, in accordance with that Instrument, amounts in the Half Year Consolidated Financial Report have been rounded off to the nearest million dollars, unless specifically stated otherwise. Comparative balances have been restated where required to reflect the change in rounding.

6. Performance & Outlook

Director since 2013

The Performance & Outlook on pages 4 to 16 is based on the Half Year Consolidated Financial Statements for the six months ended 31 December 2019 and should be read in conjunction with those financial statements. All currency amounts are expressed in Australian dollars unless otherwise specified.

4 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Performance and Outlook 6

Artist’s impression of Sydney Metro Victoria Cross Integrated Station Development

5 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Group highlights

The Group recorded a Profit after Tax of $313 million for the period ended 31 December 2019. Earnings per security was 55.5 cents with a Return on Equity of 9.8 per cent. The distribution per security was 30.0 cents. The Group’s core business, excluding Engineering and Services, generated Earnings per Security of 54.6 cents and a Return on Equity of 9.6 per cent.

Core operating EBITDA was $628 million. The Construction and Investments segments delivered solid results in line with portfolio targets. The Development segment returns were below target, however earnings for the segment are anticipated to be skewed to the second half of the financial year.

The Development segment result was driven by the creation of a joint venture to deliver the Victoria Cross Over Station Development, Sydney. The retail precinct at Paya Lebar Quarter was completed and apartment settlements occurred in Boston, London, Melbourne and Singapore.

In the Construction segment, the business delivered a solid operating performance albeit earnings were lower than the prior corresponding period partially due to the revenue and earnings on integrated projects now being reported through the Development segment.

In Investments, strong fee income was driven by growth in funds under management and the performance fee for the successful completion of Paya Lebar Quarter in Singapore. Ownership earnings were down on the prior corresponding period due to lower revaluations.

The non core Engineering and Services segment recorded EBITDA of $23 million.

The Group has entered into an agreement to divest the Engineering business for $180 million with the transaction expected to complete in the second half of the financial year. The sale process for the Services business continues.

Group Services costs of $56 million, included within corporate costs1, were down 24 per cent on the prior corresponding period as a result of the adoption of AASB 16 Leases , resulting in the reclassification of $23 million operating lease expenses to finance costs and depreciation.

Net finance costs of $76 million were up on the prior corresponding period due to higher average net debt and the adoption of AASB 16 Leases .

Net debt ended the period at $2.3 billion, up from $1.4 billion at FY19 and in line with the prior corresponding period. The average cost of debt was 3.6 per cent with an average debt maturity of 3.9 years. The Group has no material debt expiries until FY22.

The cash result reflected ongoing investment in the development pipeline and higher investments and the impact from loss making projects in the Engineering business. During the period, invested capital in the Development segment rose by $0.5 billion to $5.3 billion and invested capital in the Investments segment rose $0.3 billion to $3.9 billion.

Key Financials

Core Business EBITDA Mix

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HY19 HY20 Var.
Core Business
Development $m 261 272 4%
Construction $m 111 101 (9%)
Investments $m 273 255 (7%)
Operating EBITDA $m 645 628 (3%)
Corporate Costs $m (88) (72) 18%
Group EBITDA $m 557 556 -
Depreciation & Amortisation $m (50) (77) (54%)
Net Finance Costs $m (53) (76) (43%)
Profit before Tax $m 454 403 (11%)
Profit after Tax $m 355 308 (13%)
Non Core
EBITDA $m (474) 23 >100%
Profit/(Loss) after Tax $m (339) 5 >100%
Total Group
Revenue [2] $m 7,771 7,408 (5%)
EBITDA $m 83 579 >100%
Profit after Tax $m 16 313 >100%
Underlying Operating Cash Flow3 $m (164) 29 >100%
Net Assets4 $m 6,357 6,511 2%
Net Debt4 $m 1,425 2,294 61%
Effective Tax Rate [5,6] % n/a 23.5
Earnings per Security cents 2.8 55.5 >100%
Distribution per Security cents 12.0 30.0 >100%
Weighted avg Securities no.(m) 571 564 (1%)
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Development
Construction
Investments
41% $628m 43%
Core Business
Operating
EBITDA⁷
16%
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Core Business Profit after Tax

HY19 HY20 $355m $308m

Core Business Return on Equity

HY20 9.6%

HY19 11.3%

Core Business Earnings per Security

HY19 HY20 62.2¢ 54.6¢

1. Comprises Group Services ($56m) and Group Treasury costs ($16m). 2. Includes finance revenue and revenue from discontinued operations. 3. Underlying Operating Cash Flow is derived by adjusting statutory cash flows to better reflect the operating cash generated by the Group from its operating model. 4. Comparative values are closing FY19 balances. 5. Lendlease’s approach to tax is outlined in the 2019 Tax Report (https://www.lendlease.com/au/investor-centre/distribution-and-tax/). Details on tax balances are included within the Consolidated Financial Statements. 6 . Effective Tax Rate is non meaningful in HY19 due to the $500m pre-tax impact from losses expected to be incurred on underperforming Engineering projects. 7. Excludes Corporate.

6 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Portfolio Management Framework

The Portfolio Management Framework is designed to maximise long-term securityholder value via: a diversified risk adjusted portfolio; leveraging the competitive advantage of the integrated model; optimising the business on a long-term basis; and providing financial strength to execute our strategy, maintaining an investment grade credit rating and the capacity to absorb and respond to market volatility.

The framework reflects the Engineering and Services businesses as non core and the reclassification of internal construction margin to Development, which took effect from the second half of FY19.

Returns for the core business were solid: Development returns below the target range reflect an expected skew to the second half; the Construction margin was within target range; and Investments was at the top of the target range. The dividend payout ratio was slightly above the mid-point of the target range.

The balance sheet remains resilient with gearing rising to the mid point of the target range following ongoing investment in the development pipeline and total liquidity of $3.1 billion1.

The segment invested capital mix continues to be weighted towards Development, reflecting the significant amount of development activity that is underway. Continued implementation of our international gateway cities strategy resulted in a reduction in the proportion of capital allocated to Australia.

Group outlook

The near term outlook for the core business is supported by the expected conversion of both commercial and residential development opportunities across our major urbanisation projects.

The Group is extremely well placed for long term growth and continues to implement its strategy of delivering urban precincts with a strong focus on environmental and social outcomes. The Group remains focused on delivering its urbanisation portfolio safely, sustainably and profitably. The portfolio of 21 major urbanisation projects across 9 gateway cities provides long term earnings visibility and a strong platform to deliver enhanced risk adjusted returns to securityholders.

Since FY14 the urbanisation pipeline has grown significantly from $25 billion to $98 billion, within a total development pipeline of $112 billion. The addition of two major urbanisation projects drove strong growth during the period. These projects, one in London and the other in the San Francisco Bay Area, have a combined development end value of approximately $36 billion.

The Construction segment provides built form design and delivery capability with expertise across a range of sectors and target markets. While the majority of backlog will continue to be derived from external clients, the business plays a critical role in the integrated model.

Funds under management rose by eight per cent on the prior corresponding period to $37 billion. The Group is well placed to double funds under management as the urbanisation pipeline is delivered. Along with the $4 billion of investments and $30 billion of assets under management, it provides a growing source of recurring income.

Portfolio Management Framework

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Target HY19 HY20
Total Group Metrics
Return on Equity 10-14% 0.5% 9.8%
Dividend payout ratio 40-60% 431% 54%
Gearing2 10-20%3 9.9% 14.7%
Core Business EBITDA Mix
Development 40-50% 40% 43%
Construction 10-20% 18% 16%
Investments 35-45% 42% 41%
Core Business Segment Returns
Development ROIC4 10-13% [5] 7.5% 7.3%
Construction EBITDA margin 2-3% 2.1% 2.3%
Investments ROIC4 8-11% [5] 13.6% 10.7%
Segment Invested Capital Mix
Development 40-60% 60% 58%
Investments 40-60% 40% 42%
Regional Invested Capital Mix
Australia 50-70% 53% 48%
Asia 5-20% 14% 16%
Europe 5-20% 19% 21%
Americas 5-20% 14% 15%
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$112b

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Development Pipeline6
HY19 74.5
HY20 112.5
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$14b

Core Business Construction Backlog

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HY19 14.8
HY20 14.2
$37b
Funds Under Management
HY19 34.1
HY20 36.9
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1. Includes $701m of cash and cash equivalents for the non core businesses which has been classified as Assets held for sale. 2. Comparative value is closing FY19 balance. 3. Review of capital structure underway to reflect change in business mix. 4. Return on Invested Capital (ROIC) is calculated using the annualised Profit after Tax divided by the arithmetic average of beginning and half year end invested capital. 5. Through-cycle target based on rolling three to five year timeline. 6. Remaining estimated development end value, subject to approval and contractual conditions.

7 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Development performance

The Development segment delivered EBITDA of $272 million, up four per cent on the prior corresponding period. Earnings are expected to be skewed to the second half of the financial year, driven by both commercial and residential activity across our major urbanisation projects. Invested capital rose to $5.3 billion as the Group invests in the development pipeline.

Two new major urbanisation projects with a combined estimated end value of $36 billion were added to the pipeline. In London, the Thamesmead Waterfront development is expected to create more than 11,500 homes with an end value of approximately $14.8 billion. In the San Francisco Bay Area, the Group secured a project to develop three mixed use communities in conjunction with Google. The predominantly residential led scheme, with an end value of approximately $21.5 billion, will deliver more than 15,000 new homes over a 10-15 year timeframe.

Clippership Wharf in Boston.

The retail and residential components of Paya Lebar Quarter, Singapore’s newest lifestyle precinct, reached practical completion in the period. This milestone completes the 4-year development with approximately $4 billion of product delivered.

A development joint venture was formed to deliver the 58,000 sqm Victoria Cross Over Station Development in Sydney. The Australian Prime Property Fund Commercial acquired a 25 per cent interest in the project which is expected to have an estimated end value of $1.2 billion.

There were 836 land lot settlements across the Australian master planned communities portfolio. The market continues to be challenging with sales and settlements impacted by lower demand and tighter credit markets.

There were 1,146 apartment settlements and completions in the period. They comprise 862 apartments for sale settlements mainly from urbanisation projects in Boston, London, Melbourne and Singapore, and 284 apartments for rent completions at

Key Financials ($m)

EBITDA ($m)

EBITDA	HY19	HY20	43%
Australia	71	170
Asia	101	39	of Operating
Europe	31	56	EBITDA
Americas	58	7
Total EBITDA	261	272
Total PAT	179	186

Invested Capital¹ ($b)

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1H 2H
793
673
552
500
230
532
292
264
443
236 260 261 272
FY16 FY17 FY18 FY19 HY20
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Return on Invested Capital

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5.1 5.3
4.8
HY19 FY19 HY20
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13% 11.6%
TARGET
10% 7.5% 7.3%
HY19 FY19 HY20
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Urbanisation Completions/Settlements²

Communities Settlements (Lots)

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HY19 HY20
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1,146³ 5 Buildings
3 Buildings
124
145 66
908
Apartments (units) Commercial (sqm ’000)
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908
836
HY19 HY20
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1. Securityholder equity plus net debt. 2. Commercial and apartment for rent completions are aligned with practical completion, apartment for sale settlements are recorded on cash receipt. 3. Includes 284 apartments for rent which completed in HY20.

8 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Development outlook

The estimated end value of the development pipeline grew 51 per cent on the prior corresponding period to $112 billion. The pipeline comprises $98 billion of urbanisation projects and $15 billion of communities and other projects.

The growth in the pipeline from the prior corresponding period was driven by three new major urbanisation projects. The Milan project was secured during the second half of FY19 with the London and San Francisco Bay Area projects secured in the current period. We have a globally diversified portfolio of 21 major urbanisation projects across 9 gateway cities.

In total, the Group has an estimated $98 billion of secured urbanisation pipeline representing 56,815 apartment units and 2,402,000 sqm of commercial space. These projects are typically held in capital efficient structures, providing the Group with flexibility around delivery and timing, in line with market cycles.

The scale of the development pipeline provides scope for a substantial increase in the rate of delivery and we expect this to result in an acceleration in the delivery of urbanisation product completed over time.

During the period, delivery commenced on residential apartment for sale buildings at two urbanisation projects in Sydney and Chicago. The first building at One Sydney Harbour, Barangaroo, comprising 317 apartments, has secured $1.4 billion in presales, representing approximately two thirds of the building. Presales of apartments in delivery rose by $0.5 billion to $2.2 billion.

There are more than 1,700 apartments for rent in delivery with Cascade at Lakeshore East, a building comprising 503 units, commencing in the period. There are more than 2,200 apartments for rent in various stages of planning and approval, which are expected to commence in coming years.

There are five major commercial buildings in delivery across 317,000 sqm with a total estimated end value of $5.4 billion. In addition, there are 24 major commercial buildings in the secured pipeline which the business is targeting to convert and commence delivery over coming periods.

The Communities pipeline consists of 48,525 lots, providing more than a decade of supply based on the 3,000 to 4,000 targeted settlements per annum. This target will not be met in FY20 as a result of softer market conditions.

Pipeline¹ by Product

Pipeline¹ by Region

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Urbanisation
Communities 13%
$112b [²]
87%
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Australia
Asia
Europe 27% 27%
Americas
$112b [²]
3%
43%
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Urbanisation – Apartments Pipeline (Units)

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Units for rent in delivery³
Units presold in delivery³
Units for rent secured Units for sale secured 1-2k
1,8811,752 1,448 17,613 36,002 56,815
Target for
settlements
per annum
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Urbanisation – Commercial Pipeline (sqm)

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In delivery⁴
Indicative launch
Remaining securedH2 FY20 - FY24 2-3
3 17,0001,881 557,000 1,528,000 2,402,000
Target for
building
5 Buildings 24 Buildings
commencements
per annum
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1. Remaining estimated development end value, subject to approval and contractual conditions. 2. Includes $0.3 billion of Infrastructure pipeline. 3. Major apartment buildings in delivery only. 4. Major commercial buildings in delivery only.

9 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Construction performance

The Construction segment delivered EBITDA of $101 million, down nine per cent on the prior corresponding period. The 17 per cent decline in revenue was partly driven by activity on integrated projects being recognised in the Construction segment in the prior corresponding period.

Both revenue and earnings derived from the construction of buildings on integrated projects were reported in the Development segment from H2 FY19. This approach was adopted to more accurately reflect the returns the Group generates from its urbanisation projects through the integrated model. Comparisons with the prior corresponding period are therefore impacted by this change.

New work secured of $3.1 billion was down from $4.3 billion in the prior corresponding period as a result of lower activity in the Americas, most notably the key New York market and some delays in projects being brought to market. In addition, Australia had a higher base of project wins in HY19.

The new work secured is well diversified by sector and client, although almost two thirds was derived from Australia during the period. Key new projects included the Victoria Cross Over Station Development, HMAS Watson Redevelopment, 140 Lonsdale Street, and the Curtin University School of Design and Built Environment.

The business completed several significant projects during the period. In Australia, these included 60 Martin Place, ANU Union Court Redevelopment, Gosford Hospital Redevelopment and redevelopment of Rod Laver Arena. The Paya Lebar Quarter project was completed in Asia.

The operational performance of the Construction segment was solid with an EBITDA margin of 2.3 per cent, up from 2.1 per cent in the prior corresponding period.

Key Financials ($m)

EBITDA ($m)

EBITDA	HY19	HY20	16%
Australia	64	59
Asia Europe	4 19	(4) 14	of Operating EBITDA
Americas	24	32
Total EBITDA	111	101
Total PAT	76	59

Revenue by Region

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1H 2H
288 296
271
211
149
171 144
100
117 127 147 111 101
FY16¹ FY17 FY18 FY19 HY20
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EBITDA Margin

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Australia
Asia
Europe
Americas
44% $4.3b 43%
10%
3%
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3%
2.1% 2.3%
TARGET
2%
HY19 HY20
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New Work Secured by Region

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Australia
Asia
Europe
Americas 32%
$3.1b
62%
3%
3%
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New Work Secured by Sector

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4% 3%
Commercial
Defence 6%
Residential
Social 13% 39%
Infrastructure $3.1b
Transport
Other
16%
Hotel/
Entertainment
19%
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1. Includes Engineering and Services businesses.

10 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Construction outlook

The outlook for the Construction segment remains solid, with backlog revenue of $14 billion. Approximately 80 per cent of major project backlog will generate future revenue and margin for the Construction segment, with margin on the remainder that is derived from integrated projects, being reported through the Development segment.

Australia has a strong pipeline of work, with $6.7 billion in backlog revenue. Key projects include Sydney Place, the Crown Sydney Hotel Resort, several Defence contracts, Sydney Metro Martin Place and Sydney Metro Victoria Cross Integrated Station Developments.

In Asia, backlog revenue was broadly in line with the prior corresponding period as the business focuses on the delivery of The Exchange TRX in Kuala Lumpur and specialist sectors for external clients.

Beyond the current backlog, there is approximately $10 billion of work for which the Group is in a preferred position, across both external and integrated projects. The business is well placed to convert a significant proportion of this preferred work into backlog revenue over coming periods.

The established Construction business in the Americas has good market share in its target cities and sectors with backlog revenue of $5.3 billion. The strong growth in the urbanisation pipeline to approximately $30 billion in the region provides substantial opportunities for future construction backlog.

Backlog revenue in Europe is $1.4 billion. Europe’s $49 billion development pipeline is expected to provide a significant amount of construction work in coming years.

Backlog by Region

Backlog Realisation

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Australia
Asia
Europe
Americas 37%
47%
10%
6%
$14b
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Backlog by Sector

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4%
Commercial
Residential 9%
Defence 29%
9%
Social Major
Infrastructure Project¹
Transport 11% Backlog Revenue
Hotel/
Entertainment
20%
Other 18%
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H2 FY20
FY21
Post FY21 28%
38%
34%
Backlog by Client
Lendlease
Corporate 18%
Government
40% Major
Project¹
Backlog
Revenue
42%
$14b
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Backlog roll forward ($b)

Backlog ($b)

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3.1 (4.3)
15.6
(0.2) 14.2
FY19 New work Revenue FX and HY20
secured realised Other
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15.2 15.7 15.2 15.6
14.2
FY16 FY17 FY18 FY19 HY20
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1. Includes all Construction projects with backlog greater than $100 million, which represents 77 per cent ($11.0 billion) of secured backlog.

11 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Investments performance

The Investments segment delivered a strong result with EBITDA of $255 million generating a Return on Invested Capital of 10.7 per cent, the top end of the target range. The seven per cent decline in earnings relative to the prior corresponding period reflects the contribution from strong gains in underlying asset values in the prior period which delivered outperformance against target returns.

Ownership EBITDA was $135 million, down from $203 million in the prior corresponding period mainly due to lower asset value appreciation. To further support the growing development pipeline and diversify our capital strategy, the Group listed the Lendlease Global Commercial REIT in Singapore. The REIT was seeded with the Lendlease developed 313@somerset retail centre and three office properties at Milano Santa Giulia. Lendlease owns 24 per cent of the REIT.

The Retirement Living business made a lower contribution with a resilient performance from the established portfolio offset by a modest decline in prices and lower development activity reflecting softer market conditions.

EBITDA from Operating Earnings was $120 million, up substantially on the prior corresponding period. Growth in FUM supported higher base management fees, while the successful completion of Paya Lebar Quarter in Singapore generated a significant performance fee. Asset and property management fees from our US Military Housing operations and the Australian and Asian asset management businesses continue to support recurring earnings.

The investments platform ended the period with funds under management of $37 billion, up eight per cent on the prior corresponding period. Growth in funds under management was underpinned by the launch of the Lendlease Global Commercial REIT and doubling of residential funds under management to $1.4 billion. These contributions more than offset the decline in the FUM of APPF Retail as a result of falling assets values and divestments as the fund made progress in meeting redemptions under its liquidity window process.

Key Financials ($m)

EBITDA ($m)

EBITDA	HY19	HY20	41%
Australia	199	118
Asia	33	109	of Operating
Europe	10	5	EBITDA
Americas	31	23
Total EBITDA	273	255
Total PAT	226	199

Invested Capital¹ ($b)

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1H 2H
669
495 489
458 286
215 207 216
383
243 288 273 255
FY16 FY17 FY18 FY19 HY20
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Return on Invested Capital

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3.9
3.4 3.6
HY19 FY19 HY20
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13.6%
11% 10.8% 10.7%
TARGET
8%
HY19 FY19 HY20
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Investments EBITDA by Activity ($m)

Investments⁴ ($b)

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HY19 HY20
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HY20 4.0
3.7
3.3 3.4
3.0
203
135 120
70
Ownership interests² Operating earnings³ FY16 FY17 FY18 FY19 HY20
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1. Securityholder equity plus net debt. 2. Returns derived from co-investments, the Group’s Retirement investment, US Military Housing equity investment and other investments. 3. Earnings primarily derived from the investment management platform and the management of US Military Housing operations. 4. The Group’s assessment of market value of ownership interests.

12 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Investments outlook

The Investments segment continues to provide a solid base of recurring earnings to the Group. The integrated business model, with the development pipeline providing product and the Construction segment providing delivery capability, is expected to remain a key source of growth for the Investments segment.

Continued growth in FUM will support operating earnings in future periods. In addition to the current funds under management, there is approximately $3.1 billion of future secured FUM based on development projects currently in delivery.

A substantial uplift in the amount of institutional grade investment product will be created for capital partners and the Group’s Investments platform as the development pipeline is delivered.

The Group’s investments closed the period at $4 billion. This includes $1.9 billion of co-investments across our funds; $1.4 billion ownership interest in the Retirement Living business; and $0.7 billion in other investments including the Group’s equity interests in US Military Housing, US telecommunication assets and retail at Barangaroo.

Diversification of investments across the Group supports improved risk adjusted returns. Lendlease has relationships with approximately 150 institutional investors and a strong track record of performance. Continuing to deliver attractive outcomes for our capital partners will be critical for the ongoing success of the Investments segment.

We expect to create approximately $53 billion of institutional grade investment product from the current secured urbanisation pipeline. This comprises approximately $29 billion of commercial assets and approximately $24 billion of residential for rent assets or more than 19,000 apartment units. Demand from our capital partners for access to the end product across both commercial and residential asset classes remains strong.

Funds Under Management1 by Asset Class

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4% [3%]
Retail 3%
Office
Industrial
Residential
39%
Other
51%
$37b
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Investments1,2 by Product

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Co-investments
Retirement 12%
US Military 5%
Housing
Other 47%
36%
$4.0b
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Funds Under Management¹ by Region

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2%
Australia
5%
Asia
Europe
Americas 25%
68%
Investments1,2 by Region
Australia
Asia 2% 12%
Europe
Americas
24%
62%
$37b
$4.0b
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Funds Under Management¹ ($b)

Funds Under Management¹ roll forward ($b)

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36.9
35.2
30.1
26.1
23.6
FY16 FY17 FY18 FY19 HY20
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2.6 (1.2) 0.1 0.2 36.9
35.2
FY19 Additions Divest- Revalua- FX and HY20
ments tions Other
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1. The Group’s assessment of market value. 2. The Group’s ownership interest. Total invested capital in the segment of $3.9 billion in HY20.

13 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Non core business performance

The Non core segment comprises the Engineering and Services businesses in Australia. These businesses have been reported as a discontinued operation in HY20 based on the status of the sale process for each of the businesses.

The EBITDA for the period was $23 million, including $7 million of exit related costs. The substantial loss in the prior corresponding period included a $500 million pre tax provision relating predominantly to three underperforming projects. The Gateway Upgrade North project has completed while the remaining two projects, Kingsford Smith Drive and NorthConnex M1 / M2 Tunnel, are both more than 90 per cent complete and are due to conclude in calendar year 2020.

The Services business continues to deliver solid performance. New work secured of $1.1 billion included a multi year contract with Sydney Water and two telecommunication sector contracts with Optus. The business closed the period with a backlog of $2.2 billion and an attractive pipeline of future opportunities.

Engineering new work secured was $0.9 billion and included the bulk earthworks contract at Western Sydney International Airport and additional works on the Southern Program Alliance. The Engineering business closed the period with a backlog of $3.6 billion.

Key Financials

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HY19 HY20 Var.
EBITDA $m (474) 23 >100%
Profit/(Loss) after Tax $m (339) 5 >100%
New Work Secured $b 2.4 2.0 (17%)
Backlog $b 6.6 5.8 (12%)
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Revenue by Product

New Work Secured by Product

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Engineering
Services
28%
72%
$1.7b
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----- Start of picture text -----

Engineering
Services1
45%
55%
$2.0b
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Backlog by Sector

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2%
Rail
Transport Services 10%
Other Services 26%
Road 16%
Telecommunica- tions $5.8b
Other Engineering
22% 24%
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Backlog Realisation

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H2 FY20
FY21
Post FY21 27%
40%
33%
$5.8b
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1. Only the next five years of revenue secured on new contracts has been included.

14 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Progress on separation of non core business

During the period, the Group announced the sale of the Engineering business to Acciona Infrastructure Asia Pacific (Acciona) for a purchase price of $180 million.

The transaction is expected to complete in the first half of calendar year 2020 and is subject to conditions including client and third party consents and regulatory approvals including the Foreign Investment Review Board.

Under the terms of the sale agreement, Acciona will acquire the Engineering business excluding the NorthConnex and Kingsford Smith Drive projects, which will be completed by Lendlease. The Melbourne Metro Tunnel Project is also currently excluded with the project consortium working with Government on a confidential basis to resolve issues in relation to the scope and costs on the project. As a result, this project is currently being retained by Lendlease.

The final loss on the exit of the Engineering business will reflect a combination of exit related costs and proceeds from sale relative to the carrying value of the business on completion of the transaction. It is anticipated that this will be accounted for in FY20 following completion.

The sale process for the Services business continues.

The previously disclosed cost estimate to exit the Non core segment of $450 - $550 million pre tax remains appropriate with $22 million expensed to date. Exit related costs1 include:

• Implementation and selling costs;

• Indemnities included in any sale agreement; and

• Potential costs to cover concluding projects retained by the Group.

This cost estimate, together with existing provisions, is considered appropriate to cover concluding retained projects and to exit the Non core segment.

1. Previously referred to as restructuring cost estimate.

15 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Financial position and cash flow movements

Financial Position

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FY19 HY20
$m $m Var.
Cash and cash equivalents1 1,290 396 (69%)
Inventories 5,583 5,395 (3%)
Equity accounted investments 3,452 3,822 11%
Investment properties 501 598 19%
Disposal Group assets held for sale1 - 1,900 100%
Other assets (including financial) 6,352 5,910 (7%)
Total assets 17,178 18,021 5%
Borrowing and financing arrangements 2,715 3,391 25%
Disposal Group liabilities held for sale - 1,700 100%
Other liabilities (including financial) 8,106 6,419 (21%)
Total liabilities 10,821 11,510 6%
Net assets 6,357 6,511 2%
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Inventories

Inventories decreased by three per cent with rising core construction inventories more than offset by the decrease in non core construction inventories following their reclassification to assets held for sale.

Equity accounted investments

Equity accounted investments increased by 11 per cent on the prior period. The listing of the Lendlease Global Commercial REIT was the largest contributor to the increase. The stabilisation of Paya Lebar Quarter and the creation of the development joint venture for Victoria Cross also contributed.

Other asset movements

The seven per cent decline in other assets reflects the reclassification of assets to held for sale along with the reduction in the Group’s investment in Lendlease International Towers Sydney Trust. The rise in Investment Properties in the period reflects ongoing capital expenditure on telecommunications towers in the US and the transfer of stabilised assets from Development.

Total assets, total liabilities and net assets

Total assets rose by five per cent reflecting the growth in Investment Properties, Equity Accounted Investments and the increase in core business inventories. The movement in net assets reflects profit and distributions over the period.

Cash movements ($m)

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1,290 29 (125) (503) 406 1,097
FY19 Underlying Interest Underlying Net HY20
closing operating and tax investing financing closing
cash cash paid cash flow and other cash¹
flow adjustments
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Financing cash flow

Net cash inflow from financing activities was $425 million. Financing activity in the period was limited following the significant amount of financing completed during FY19 as the Group increased available liquidity and lengthened its debt maturity profile. The net inflow reflected greater utilisation of syndicated bank facilities during the period. The Group remains in a strong financial position with $3.1 billion1 of liquidity.

Operating and investing cash flow

The Group measures underlying cash flows to better reflect the cash flows generated by its business model. This approach enables an assessment of cash conversion, measured as underlying operating cash flow relative to EBITDA. The measures are derived by adjusting statutory cash flows, with the largest adjustment relating to cash flow invested in development.

Underlying operating cash flow was $29 million. The major operating cash inflows during the period included apartment and communities settlements across our development projects and

the cash realisation of profit recognised in prior periods. There was a negative impact from payment of approximately $220 million of presold apartment revenue collected in previous periods through the PLLACes program. There are currently no outstanding PLLACes programs. Loss making Engineering projects that have been previously provided for in the income statement also reduced underlying cash flows. These impacts were the predominant drivers of a lower cash conversion ratio of five per cent in HY20 compared to 84 per cent cash to EBITDA conversion since FY16.

Underlying investing cash outflow was $503 million. The major contributors included capital invested in establishing the new $1.5 billion Lendlease Global Commercial REIT with a 24.3 per cent interest, and additional equity commitments into the growing development pipeline.

1. $701m of cash and cash equivalents for the non core businesses has been classified as Assets held for sale at HY20.

16 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

Group funding and debt facilities

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FY19 HY20 Var.
Net debt1 $m 1,425 2,294 61%
Borrowings to total equity plus borrowings % 29.9 34.2 14%
Net debt to total tangible assets, less cash1 % 9.9 14.7 48%
Interest cover2 times 8.8 7.4 (16%)
Average cost of debt % 4.0 3.6 (10%)
Average debt maturity years 4.8 3.9 (19%)
Average debt mix fixed: floating ratio 52:48 49:51
Undrawn facilities $m 2,631 2,009 (24%)
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Net debt and gearing increased during the period, with gearing at the mid point of the target range. Interest cover was 7.4 times, with the weighted average debt maturity 3.9 years. Cash and cash equivalents of $1.1 billion includes the Group’s share of cash from joint operations of approximately $700 million, which is reported in the balance sheet as Assets held for sale. The Group’s liquidity position is $3.1 billion1.

Debt Facilities3 ($m)

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Drawn Facility 1,800
960
755 725
562 564 564 568 568
303 303 343 318 318
Australian Syndicated UK Club Asia Loan US$ Reg. Singapore
Medium Term Cash Advance Bond Revolving Facility S notes Bond
Notes Facility Issue Credit Facility S$300m
Debt Maturity Profile4 ($m)
Australian Medium Term Notes
Syndicated Cash Advance Facility
UK Bond Issue
Club Revolving Credit Facility
Asia Loan Facility
US$ Reg. S notes
Singapore Bond S$300m 546
Undrawn 755
566
900 900 960
571
225 319 80
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29
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1. HY20 includes $701m of cash and cash equivalents for the non core businesses which has been classified as Assets held for sale. 2. FY19 EBITDA has been adjusted to exclude the $500m pre-tax impact from losses expected to be incurred on underperforming Engineering projects. 3. Values are shown at amortised cost. 4. Values are shown at gross facility value.

17 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

This report is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors.

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M J Ullmer, AO Chairman

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S B McCann Chief Executive Officer & Managing Director

Sydney, 20 February 2020

18 / Directors’ Report / Lendlease Half Year Consolidated Financial Report December 2019

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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 review for the half-year ended 31 December 2019 there have been:

• i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and

• ii. no contraventions of any applicable code of professional conduct in relation to the review.

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KPMG

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D M McLennan

Partner

Sydney 20 February 2020

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

19 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Lendlease Half Year Financial Statements December 2019

Artist’s impression of Sydney Metro Martin Place Integrated Station Development

20 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Table of Contents

Consolidated Financial Statements

Consolidated Financial Statements
Income Statement	21
Statement of Comprehensive Income	22
Statement of Financial Position	23
Statement of Changes in Equity	24
Statement of Cash Flows	25
Notes to the Consolidated Financial Statements	26

Notes Index

Section A: Performance

1.	Segment Reporting	29
2.	Dividends/Distributions	31
3.	Earnings per Share/Stapled Security	31
4.	Revenue from Contracts with Customers	32
5.	Other Income	32
6.	Other Expenses	33
7.	Finance Revenue and Finance Costs	33
8.	Share of Proft of Equity Accounted Investments	33
9.	Taxation	34
10.	Events Subsequent to Balance Date	34
Section B: Investment
11.	Inventories	35
12.	Equity Accounted Investments	35
13.	Other Financial Assets	40
Section C: Liquidity and Working Capital
14.	Borrowings and Financing Arrangements	41
15.	Issued Capital	42
16.	Loans and Receivables	42
17.	Trade and Other Payables	43
18.	Cash and Cash Equivalents	44
Section D: Other Notes
19.	Fair Value Measurement	45
20.	Contingent Liabilities	45
21.	Discontinued Operations	46
Section E: Basis of Consolidation
22.	Consolidated Entities	48
Directors’ Declaration		49

Lendlease Corporation Limited (the Company) is incorporated and domiciled in Australia. The consolidated financial report of the Company for the half year ended 31 December 2019 comprises the Company including its controlled entities and 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 infrastructure 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 20 February 2020.

21 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Consolidated Financial Statements

Income Statement – Half Year Ended 31 December 2019

			6 months	6 months
			December 2019	December 2018 1
		Note	$m	$m
Revenue from contracts with customers		4	5,648	6,155
Other revenue			90	82
Cost of sales			(5,142)	(5,774)
Gross profit			596	463
Share of profit of equity accounted investments		8	65	192
Other income		5	276	206
Other expenses			(458)	(354)
Results from operating activities from continuing operations			479	507
Finance revenue		7	5	9
Finance costs		7	(81)	(62)
Net finance costs			(76)	(53)
Profit before tax from continuing operations			403	454
Income tax expense		9	(95)	(99)
Profit after tax from continuing operations			308	355
Profit /(loss) after tax from discontinued operations		21	5	(339)
Profit after tax			313	16
Profit/(loss) after tax attributable to:
Members of Lendlease Corporation Limited			281	(91)
Unitholders of Lendlease Trust			32	107
Profit after tax attributable to securityholders			313	16
External non controlling interests			-	-
Profit after tax			313	16
Basic/Diluted Earnings per Lendlease Group Stapled Security (EPSS) from Continuing Operations
Securities excluding treasury securities	(cents)	21	55.0	62.6
Securities on issue	(cents)	21	54.6	62.2
Basic/Diluted Earnings per Lendlease Group Stapled Security (EPSS)
Securities excluding treasury securities	(cents)	3	55.9	2.8
Securities on issue	(cents)	3	55.5	2.8

1. December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

The accompanying notes form part of these consolidated financial statements.

22 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Consolidated Financial Statements continued

Statement of Comprehensive Income – Half Year Ended 31 December 2019

	6 months	6 months
	December 2019	December 2018 2
	$m	$m
Profit after Tax	313	16
Other Comprehensive Income/(Expense) after Tax
Items that may be reclassified subsequently to profit or loss:
Movements in hedging reserve	13	(3)
Movements in foreign currency translation reserve	18	84
Total items that may be reclassified subsequently to profit or	loss 1 31	81
Items that will not be reclassified to profit or loss:
Movements in non controlling interest acquisition reserve	(1)	(5)
Defined benefit plans remeasurements	(16)	(23)
Total items that will not be reclassified to profit or loss	(17)	(28)
Total comprehensive income after tax	327	69
Total comprehensive income after tax from continuing operations attributable to:
Members of Lendlease Corporation Limited	293	302
Unitholders of Lendlease Trust	29	106
Total comprehensive income after tax from discontinued operations attributable to:
Members of Lendlease Corporation Limited	5	(339)
Total comprehensive income after tax attributable to securityholders 327		69
External non controlling interests	-	-
Total comprehensive income after tax	327	69

1. Includes $21 million (December 2018: $53 million) relating to share of other comprehensive income on equity accounted investments.

2. December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

The accompanying notes form part of these consolidated financial statements.

23 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Consolidated Financial Statements continued

Statement of Financial Position – As at 31 December 2019

		December 2019	June 2019
	Note	$m	$m
Current Assets
Cash and cash equivalents	18	396	1,290
Loans and receivables	16	1,895	2,050
Inventories	11	1,837	2,238
Other financial assets	13	15	97
Current tax assets		21	11
Other assets		89	70
Disposal Group assets held for sale	21	1,900	-
Total current assets		6,153	5,756
Non Current Assets
Loans and receivables	16	531	688
Inventories	11	3,558	3,345
Equity accounted investments	12	3,822	3,452
Investment properties		598	501
Other financial assets	13	1,088	1,103
Deferred tax assets		124	101
Property, plant and equipment		653	548
Intangible assets		1,286	1,457
Defined benefit plan asset		128	140
Other assets		80	87
Total non current assets		11,868	11,422
Total assets		18,021	17,178
Current Liabilities
Trade and other payables	17	3,795	5,724
Provisions		257	332
Borrowings and financing arrangements	14a	225	225
Other financial liabilities		7	6
Disposal Group liabilities held for sale	21	1,700	-
Total current liabilities		5,984	6,287
Non Current Liabilities
Trade and other payables	17	1,617	1,401
Provisions		48	45
Borrowings and financing arrangements	14a	3,166	2,490
Other financial liabilities		-	1
Deferred tax liabilities		695	597
Total non current liabilities		5,526	4,534
Total liabilities		11,510	10,821
Net assets		6,511	6,357
Equity
Issued capital	15	1,304	1,300
Treasury securities		(67)	(68)
Reserves		99	105
Retained earnings		3,985	3,815
Total equity attributable to members of Lendlease Corporation Limited		5,321	5,152
Total equity attributable to unitholders of Lendlease Trust		1,167	1,182
Total equity attributable to securityholders		6,488	6,334
External non controlling interests		23	23
Total equity		6,511	6,357

The accompanying notes form part of these consolidated financial statements.

24 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Consolidated Financial Statements continued

Statement of Changes in Equity – Half Year Ended 31 December 2019

					Members of		External
					Lendlease	Unitholders	Non
	Issued	Treasury		Retained	Corporation	of Lendlease	Controlling	Total
	Capital	Securities¹	Reserves²	Earnings	Limited	Trust	Interests	Equity
	$m	$m	$m	$m	$m	$m	$m	$m
Balance as at 1 July 2018	1,297	(44)	61	3,855	5,169	1,244	1	6,414
Total Comprehensive Income
(Loss)/profit for the period	-	-	-	(91)	(91)	107	-	16
Other Comprehensive Income (Net of tax)	-	-	76	(23)	53	-	-	53
Total Comprehensive Income	-	-	76	(114)	(38)	107	-	69
Transactions with Owners of the
Company
On market buyback of securities	-	-	-	(140)	(140)	(34)	-	(174)
Dividends and distributions	-	-	-	(174)	(174)	-	-	(174)
Treasury securities acquired	-	(50)	-	-	(50)	-	-	(50)
Treasury securities vested	-	33	-	-	33	-	-	33
Fair value movement on allocation and
vesting of securities	-	-	(10)	-	(10)	-	-	(10)
Asset disposals and transfers	-	-	(1)	-	(1)	-	-	(1)
Other movements	-	-	(1)	-	(1)	-	-	(1)
Total other movements through reserves	-	(17)	(12)	(314)	(343)	(34)	-	(377)
Balance as at 31 December 2018	1,297	(61)	125	3,427	4,788	1,317	1	6,106
Balance as at 30 June 2019	1,300	(68)	105	3,815	5,152	1,182	23	6,357
Impact of change in accounting policy 3	-	-	-	(42)	(42)	-	-	(42)
Balance as at 1 July 2019	1,300	(68)	105	3,773	5,110	1,182	23	6,315
Total Comprehensive Income
Profit for the period	-	-	-	281	281	32	-	313
Other Comprehensive Income (Net of tax)	-	-	33	(16)	17	(3)	-	14
Total Comprehensive Income	-	-	33	265	298	29	-	327
Transactions with Owners of the Company
Distribution reinvestment plan (DRP)	4	-	-	-	4	1	-	5
Dividends and distributions	-	-	-	(53)	(53)	(45)	-	(98)
Treasury securities acquired	-	(51)	-	-	(51)	-	-	(51)
Treasury securities vested	-	52	-	-	52	-	-	52
Fair value movement on allocation and
vesting of securities	-	-	(16)	-	(16)	-	-	(16)
Asset disposals and transfers	-	-	(23)	-	(23)	-	-	(23)
Total other movements through reserves	4	1	(39)	(53)	(87)	(44)	-	(131)
Balance as at 31 December 2019	1,304	(67)	99	3,985	5,321	1,167	23	6,511

1. Opening balance for number of treasury securities 1 July 2019 was 4 million (1 July 2018: 4 million) and closing balance at 31 December 2019 was 4 million (31 December 2018: 4 million).

2. Balance and movement in reserves are presented on a combined basis for the half year ended 31 December 2019 and 31 December 2018.

3. December 2019 Statement of Changes in Equity have been adjusted to reflect the impact of the first time adoption of AASB 16 Leases (refer to New and Revised Accounting Standards Adopted 1 July 2019) by recording $(42) million to opening retained earnings.

The accompanying notes form part of these consolidated financial statements.

25 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Consolidated Financial Statements continued

Statement of Cash Flows – Half Year Ended 31 December 2019

			6 months	6 months
			December 2019 2	December 2018²
		Note	$m	$m
Cash Flows from Operating Activities
Cash receipts in the course of operations			7,321	8,071
Cash payments in the course of operations			(7,664)	(8,862)
Interest received			4	6
Interest paid in relation to other corporations			(95)	(85)
Interest in relation to lease liabilities 1			(13)	-
Dividends/distributions received			110	63
Income tax paid in respect of operations			(21)	(17)
Net cash used in operating activities			(358)	(824)
Cash Flows from Investing Activities
Redemption of investments			304	228
Acquisition of investments			(499)	(201)
Acquisition of/capital expenditure on investment properties			(37)	(18)
Net loan drawdowns from associates and joint ventures			(33)	(20)
Disposal of consolidated entities (net of cash disposed and transaction costs)			94	232
Disposal of property, plant and equipment			13	7
Acquisition of property, plant and equipment			(51)	(47)
Acquisition of intangible assets			(32)	(24)
Net cash (used in)/provided by investing activities			(241)	157
Cash Flows from Financing Activities
Proceeds from borrowings			2,060	3,031
Repayment of borrowings			(1,445)	(2,090)
Dividends/distributions paid			(163)	(190)
Payments for on market buyback of stapled securities			-	(174)
Payments for on market buyback of stapled securities	- Distribution Reinvestment Plan		-	(11)
Repayment of lease liabilities 1			(27)	-
Net cash provided by financing activities			425	566
Other Cash Flow Items
Effect of foreign exchange rate movements on cash and cash equivalents			(19)	12
Net decrease in cash and cash equivalents			(193)	(89)
Cash and cash equivalents at beginning of financial period		18	1,290	1,177
Cash and cash equivalents at end of financial period	3	18	1,097	1,088

1. December 2018 comparatives are $nil as Interest in relation to lease liabilities and Repayment of lease liabilities were not recognised under AASB 117 Leases .

2. Balances include cash flows relating to both continuing and discontinued operations. Net cash flows relating to discontinued operations have been disclosed in Note 21 ‘Discontinued Operations’.

3. $701 million of cash and cash equivalents has been classified as Assets held for sale at 31 December 2019. Refer to Note 18 'Cash and Cash Equivalents' for further detail.

The accompanying notes form part of these consolidated financial statements.

26 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements

Basis of Preparation

The consolidated financial report is a general purpose financial report, which:

• Has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001;

• Complies with the recognition and measurement requirements of the International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB);

• Should be read in conjunction with the 30 June 2019 annual consolidated financial report and any public announcements by the Group during the half year in accordance with continuous disclosure obligations arising under the Corporations Act 2001 . The half year financial report does not contain all the information required for a full financial report;

• Is presented in Australian dollars, with all values rounded off to the nearest million dollars unless otherwise indicated, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) instrument 2016/191;

• The comparative financial information in the Income Statement, Statement of Comprehensive Income and related Notes have been restated for discontinued operations during the year. The comparative information in the Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and related Notes have not been restated. Refer to Note 21 ‘Discontinued Operations’ for further details;

• Segment disclosures in Note 1 ‘Segment Reporting’ have been restated in line with a reassessment of the Group’s strategy in February 2019;

• Certain other comparative balances have been reclassified following the adoption of AASB 16 Leases ; and

• 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 financial statements for the basis of valuation of assets and liabilities measured at fair value.

The preparation of an interim financial report that complies with AASB 134 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 accounting policies have been consistently applied by the Group and are consistent with those applied in the 30 June 2019 annual consolidated financial report other than as stated below.

Impact of New and Revised Accounting Standards

New and Revised Accounting Standards Adopted 1 July 2019

From 1 July 2019 the Group adopted Interpretation 23 Uncertainty over Income Tax Treatments . Interpretation 23 did not have a material impact on the Group.

From 1 July 2019 the Group adopted AASB 16 Leases and consequential amendments. AASB 16 provides a new model for accounting for leases. AASB 16 is based on the principle that all leases the Group enters as a lessee will be recognised on balance sheet, with a right-of-use asset and lease liability recognised, with depreciation recognised on the right-of-use asset and interest expense on the lease liability. Lease expense (depreciation expense and interest expense) will effectively be front-loaded to the start of the lease period, even when cash lease payments are constant throughout the period of the lease.

The Group utilised the modified retrospective cumulative approach to transition to AASB 16, therefore comparatives have not been restated. Comparatives continue to be accounted for in accordance with the Group’s previous accounting policies outlined in the 30 June 2019 annual consolidated financial report.

Payments associated with short term leases and leases of low value assets are recognised on a straight-line basis as an expense in the Income Statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

The Group presents right-of-use assets that do not meet the definition of investment property in Property, plant and equipment, the same line item as it presents underlying assets of the same nature that it owns. Right-of-use assets that meet the definition of investment property are presented within investment property.

Based on analysis performed, as a lessor, there was no material impact to the Group on adoption. As a lessee, on adoption, the Group has:

• Recorded a right-of-use asset of $437 million, lease liabilities of $(514) million, derecognition of existing lease balances under AASB 117 Leases of $18 million and a net deferred tax asset of $17 million in the Statement of Financial Position for its material operating lease commitments. The sum of these adjustments is $(42) million;

• The net difference of $(42) million was recorded as an adjustment to equity to reflect the cumulative impact on initial adoption of the standard; and

• The net impact to the Income Statement for the period is a $1 million increase in expenses.

On adoption, the Group has measured lease liabilities at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 30 June 2019. The incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 4.8%.

In applying AASB 16 for the first time, the Group has applied the following practical expedients permitted by the standard for leases:

• The ability to not reassess whether a contract is, or contains, a lease at the date of initial application (prior to 1 July 2019);

• The application of a single discount rate to a portfolio of leases;

• The use of hindsight in determining the lease term; and

• The decision to exclude a lease for which the lease term ends within 12 months of initial application.

New disclosures have been included where required. Changes to disclosures include reclassification of prior period balances to better align the presentation of comparative information to the new disclosure requirements.

27 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Basis of Preparation continued

Impact of New and Revised Accounting Standards continued

Changes to accounting policies from 1 July 2019

The Group’s accounting policies have been revised to reflect the guidance of the new leasing standard with effect from 1 July 2019. Refer below for further details:

Recognition

As a lessee, the Group assesses whether a contract is or contains a lease at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Group assesses whether:

• The contract involved the use of an identified asset;

• The Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and

• The Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used.

For the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease component as a single lease component.

The Group’s primary leasing activities are for office space in the regions and cities in which it operates. There are no material future cash outflows to which the Group is potentially exposed that are not reflected in the measurement of lease liabilities, and there are no material restrictions or covenants imposed by the Group’s leases.

Measurement

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises:

• The initial amount of the lease liability;

• Any lease payments made at or before the commencement date less any lease incentives received;

• Initial direct costs; and

• Restoration cost.

Right-of-Use Assets

Right-of-use assets which meet the definition of property, plant and equipment form part of the property, plant and equipment balance and are measured at cost less accumulated depreciation in accordance with AASB 116 Property, Plant and Equipment .

Right-of-use assets which meet the definition of investment property form part of the investment property balance and are measured at fair value in accordance with AASB 140 Investment Property .

Lease Liabilities

Lease liabilities are initially measured at the present value of the lease payments discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of lease liability comprise the following:

• Fixed payments offset by any lease incentives;

• Variable lease payments, for lease liabilities which are tied to a floating index;

• Amounts expected to be payable under a residual value guarantee;

• The exercise price of purchase options (if it is reasonably certain that the option will be exercised); and

• Payments of penalties for terminating leases, if the lease term reflects the lease terminating early.

Lease liabilities are subsequently measured by:

• Increasing the carrying amount to reflect interest on the lease liability;

• Reducing the carrying amount to reflect the lease payments made; and

• Remeasuring the carrying amount upon the occurrence of certain events (such as a change in the lease term or lease payments).

When a lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset and is recorded in the profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

28 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Basis of Preparation continued

Impact of New and Revised Accounting Standards continued

Changes to accounting policies from 1 July 2019 continued

Depreciation and Amortisation

Right-of-use assets are depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

Presentation

Items relating to leases are presented as follows:

• Right-of-use assets are recognised in the Statement of Financial Position within the same line item as that within which the corresponding underlying assets would be presented if they were owned by the Group, within either Property, plant and equipment or Investment property;

• Lease liabilities are recognised within Trade and other payables in the Statement of Financial Position and split between current and noncurrent liabilities;

• Depreciation charge for right-of-uses assets is recognised within Other expenses; and

• Interest expense on lease liabilities is recognised within Finance costs.

Relevant information on the Group’s leasing has been included in the following notes: Note 6 'Other Expenses', Note 7 'Finance Revenue and Finance Costs' and Note 17 'Trade and Other Payables'.

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

New Accounting Standards and Interpretations Not Yet Adopted

Accounting Standard	Requirement	Impact on Financial Statements
AASB 2014-10	AASB 2014-10 amends AASB 10 and AASB 128 to	Based on preliminary analysis performed, the
Amendments to Australian	clarify the requirements for recording the sale or	amendments are not expected to have a material
Accounting Standards – Sale or	contribution of assets between an investor and its	impact on the Group.
Contribution of Assets between	associate or joint venture.
an Investor and its Associate or	The amendment becomes mandatory for the
_Joint Venture_and consequential	June 2023 financial year and will be applied
amendments	prospectively.

29 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance

Earnings before interest, tax, depreciation and amortisation (EBITDA) and Profit after tax (PAT) are the key measures used to assess the Group’s performance. This section of the Financial Report focuses on disclosure that enhances a user’s understanding of EBITDA and PAT. Segment Reporting below provides a breakdown of profit and revenue by the operational activity. The key line items of the Income Statement along with their components provide detail behind the reported balances. Group performance will also impact the earnings per stapled security and dividend payout, therefore disclosure on these items has been included in this section. Further information and analysis on performance and allocation of resources can be found in the Performance & Outlook section of the Directors’ Report.

1. Segment Reporting

The Group’s segments are Development, Construction, Investments and Non core. The Group has identified these operating segments based on the distinct products and services provided by each segment, the distinct target returns profile and allocation of resources for each segment, and internal reports that are reviewed and used by the Group Chief Executive Officer and Managing Director (the Chief Operating Decision Maker) in assessing performance, determining the allocation of resources, setting operational targets, and managing the Group.

The Group has arranged the segments around business activity rather than geography due to the Group’s business model being broadly consistent in all regions.

Segment performance is based on EBITDA and PAT. EBITDA and PAT are used to measure performance as management believes that such information is the most relevant in evaluating the results of certain reportable segments relative to other entities that operate within these industries. The Group does not consider corporate activities to be an operating segment.

The operating segments are as follows:

Development

Operates in all four geographic regions. Its products and services include the development of inner city mixed use developments, apartments, communities, retirement, retail, commercial assets and social and economic infrastructure. Construction margin earned on internal projects is recognised in this segment.

Construction

Operates across all four geographic regions. Its products and services include the provision of project management, design and construction services, predominantly in the defence, mixed use, commercial and residential sectors.

Investments

Services include owning and/or managing investments across all four geographic regions. The investments segment includes a leading investment management platform and also includes the Group’s ownership interests in property and infrastructure Co-Investments, Retirement Living and US Military Housing.

Non core

Non core includes the provision of project management, design and construction services in the Australian infrastructure sector. These products and services represent the Engineering and Services business. The Chief Operating Decision Maker receives separate information about this business, given the Group announced in February 2019 that the Engineering and Services business is no longer a required part of the Group’s strategy. The discontinued operations referenced throughout the financial statements are equal to the result of this segment. Refer to Note 21 ‘Discontinued Operations’ for further detail.

30 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance continued

1. Segment Reporting continued

Financial information regarding the performance of each reportable segment and a reconciliation of these reportable segments to the financial statements is included below.

	EBITDA¹	PROFIT BEFORE TAX	PROFIT AFTER TAX	GROUP TOTAL ASSETS
	6 months December 2019 $m 6 months December 2018 $m	6 months December 2019 $m 6 months December 2018 $m	6 months December 2019 $m 6 months December 2018 $m	December 2019 $m June 2019 $m
Core Development Construction 2 Investments		260 258 83 105 246 270
	272 261		186 180	7,202 7,101
	101 111		59 75	3,756 3,710
	255 273		199 226	4,370 4,028
Total core segments	628 645	589 633	444 481	15,328 14,839
Non core 2	23 (474)	6 (485)	5 (339)	1,900 2,089
Total segments	651 171	595 148	449 142	17,228 16,928
Reconciling Items Corporate activities		(186) (179)
	(72) (88)		(136) (126)	793 250
Total	579 83	409 (31)	313 16	18,021 17,178
Interest, tax, depreciation and amortisation 1	(266) (67)
Statutory result (Profit after tax)	313 16

1. EBITDA represents earnings before interest of $(76) million (December 2018: $(53) million), tax of $(96) million (December 2018: $47 million), depreciation and amortisation of $(94) million (December 2018: $(61) million).

2. December 2018 comparatives have been restated to separately present the results of the Engineering and Services business as a non core operating business.

The operating segments generate revenue in the following regions.

December 2019	REVENUE¹	REVENUE¹	REVENUE¹	REVENUE¹
	Development $m Construction $m	Investments $m Total Core Segments $m Non Core $m	Total Segments $m Corporate Activities $m	Statutory Result $m
Australia Asia Europe Americas	530 1,863 92 2,485 1,665 4,150 22 4,172
	7 122 95 224 - 224 - 224
	492 414 11 917 - 917 - 917
	132 1,927 36 2,095 - 2,095 - 2,095
Total	1,161 4,326 234 5,721 1,665 7,386 22 7,408
December 2018 2
Australia Asia Europe Americas	595 2,149 104 2,848 1,525 4,373 21 4,394 9 200 29 238 - 238 - 238 223 487 6 716 - 716 - 716 43 2,355 25 2,423 - 2,423 - 2,423
Total	870 5,191 164 6,225 1,525 7,750 21 7,771

1. Segment revenue as disclosed in the Performance and Outlook, is comprised of Revenue from contracts with customers, Other revenue and Finance revenue.

2. December 2018 comparatives have been restated to separately present the results of the Engineering and Services business as a non core operating business.

No revenue from transactions with a single external customer amounts to 10 per cent or more of the Group’s revenue.

31 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance continued

2. Dividends/Distributions[1]

Cents Per Share/Unit	COMPANY/TRUST
	6 months December 2019 $m 6 months December 2018 $m
Parent Company Interim Dividend December 2019 – declared subsequent to reporting date 2 22.1 December 2018 3 - Lendlease Trust Interim Distribution December 2019 – provided for and payable 17 March 2020 7.9 December 2018 – paid 20 March 2019 12.0	124 - - - 45 - - 68
	169 68

Cents Per Share/Unit	COMPANY/TRUST
	6 months June 2019 $m 6 months June 2018 $m
Parent Company Final Dividend June 2019 – paid 16 September 2019 9.5 June 2018 – paid 21 September 2018 30.3 Lendlease Trust Final Distribution June 2019 – paid 16 September 2019 20.5 June 2018 – paid 21 September 2018 4.7	53 - - 174 116 - - 27
	169 201

1. Final and/or Interim dividends/distribution were not franked in the current and prior period.

2 . No provision for this distribution has been recognised in the Statement of Financial Position at December 2019, as it was declared after the end of the half year.

3. No dividend was declared for the Company for the December 2018 half year.

3. Earnings Per Share/Stapled Security (EPS/EPSS)1	December 2019	December 2018
	Shares/Securities excluding Treasury Securities Shares/ Securities on Issue Shares/Securities excluding Treasury Securities Shares/ Securities on Issue
Basic/Diluted Earnings Per Share (EPS) Profit/(loss) attributable to members of Lendlease Corporation Limited used in calculating basic/diluted EPS $m Weighted average number of ordinary shares m
	281 281 (91) (91)
	560 564 567 571
Basic/Diluted EPS cents	50.2 49.8 (16.0) (15.9)
Basic/Diluted Earnings Per Stapled Security (EPSS) Profit attributable to securityholders of Lendlease Group $m Weighted average number of stapled securities m
	313 313 16 16
	560 564 567 571
Basic/Diluted EPSS cents	55.9 55.5 2.8 2.8

1. Balances include both continuing and discontinued operations. Earnings per share/stapled security for continuing and discontinued operations have been separately disclosed in Note 21 ‘Discontinued Operations’.

32 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance continued

4. Revenue from Contracts with Customers

4. Revenue from Contracts with	Customers	6 months	6 months
		December 2019	December 2018
		$m	$m 3
Revenue from the Provision of Services
Construction services 1		4,325	5,189
Development services		531	245
Investments services		193	126
Total revenue from the provision of services		5,049	5,560
Revenue from the sale of development properties		599	595
Total revenue from contracts with customers	2	5,648	6,155

1. December 2018 balances have been restated to align the presentation of comparative information to the change in segments disclosed in Note 1 ‘Segment Reporting’. 2. Further information on revenue by geography and by segments is included in Note 1 ‘Segment Reporting’. Segment revenue as disclosed in the Performance and Outlook, is comprised of Revenue from contracts with customers, Other revenue and Finance revenue.

3 . December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

5. Other Income	6 months December 2019	6 months December 2018 2
	$m	$m
Net Gain on Sale/Transfer of Investments
Consolidated entities 1	159	73
Other financial assets at fair value	2	13
Equity accounted investments	35	-
Total net gain on sale/transfer of investments	196	86
Net Gain on Fair Value Measurement
Investment properties	24	36
Fair value through profit or loss assets	17	70
Total net gain on fair value measurement	41	106
Other	39	14
Total other income	276	206

1. During the period, the Group disposed of a 25 per cent interest in Victoria Cross Commercial Head Trust. The Group recorded a gain on sale of $31 million. Refer to Note 22 'Consolidated Entities' for further detail. The remaining 75 per cent interest retained by the Group provided a revaluation gain of $92 million based on the transaction price.

2. December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

33 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance continued

6. Other Expenses 6 months December 2019	6 months December 2018³
$m	$m
Profit before income tax includes the following other expense items:
Net defined benefit plan expense 1	-
Expenses include impairments raised/(reversals) relating to:
Property inventories 8	(1)
Equity accounted investments 2	(4)
Net loss on sale of property, plant and equipment 2	-
Operating lease expense (including outgoings) 14	45
Depreciation on right-of-use assets 1 30	-
Depreciation on owned assets 2 21	22
Amortisation 2 26	28
Net foreign exchange loss -	1

1. December 2018 comparatives are $nil as depreciation of right-of-use assets was not recognised under AASB 117 Leases .

2. December 2018 comparatives have been reclassified to separately present depreciation and amortisation due to the adoption of AASB 16 Leases .

3. December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

7. Finance Revenue and Finance Costs	7. Finance Revenue and Finance Costs	7. Finance Revenue and Finance Costs	6 months	6 months
			December 2019	December 2018
			$m	$m
Finance Revenue
Other corporations			3	6
Other finance revenue			1	-
Total interest finance revenue			4	6
Interest discounting			1	3
Total finance revenue			5	9
Finance Costs
Interest expense in relation to other corporations 1			79	72
Interest expense in relation to lease liabilities	2		13	-
Less: Capitalised interest finance costs			(16)	(15)
Total interest finance costs			76	57
Non interest finance costs			5	5
Total finance costs			81	62
Net finance costs			(76)	(53)

1. As a result of the adoption of AASB 16 Leases , the description has changed from Other corporations to Interest expense in relation to other corporations.

2. December 2018 comparatives are $nil as Interest expense in relation to lease liabilities were not recognised under AASB 117 Leases .

8. Share of Profit of Equity Accounted Investments

8. Share of Profit of Equity Accounted Investments		6 months December 2019	6 months December 2018 2
	Note	$m	$m
Associates 1
Share of profit	12a	6	12
Joint Ventures 1
Share of profit	12b	59	180
Total share of profit of equity accounted investments		65	192

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 . December 2018 balances have been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further detail.

34 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section A: Performance continued

9. Taxation

Income Tax Expense				6 months December 2019	6 months December 2018
				$m	$m
Recognised in the Income Statement
Current Tax Expense
Current period				(4)	(70)
Adjustments for prior years				-	(1)
Benefit of tax losses recognised				-	(2)
Total current tax expense/(benefit)				(4)	(73)
Deferred Tax Expense
Origination and reversal of temporary differences				109	35
Temporary differences recovered				(5)	(2)
Net tax losses recognised				(4)	(7)
Total deferred tax expense				100	26
Total income tax expense/(benefit)	1			96	(47)
Reconciliation of Effective Tax Rate
Profit/(loss) before tax				409	(31)
Income tax using the domestic corporation tax rate of 30 per cent				123	(9)
Adjustments for prior year tax claim				-	(1)
Non assessable and exempt income 2				(21)	(35)
Non allowable expenses 3				3	2
Net write-off/(recognition) of tax losses through income tax expense				2	(1)
Temporary differences recognised through income tax expense			4	(5)	-
Utilisation of capital losses on disposal of assets				-	(3)
Effect of tax rates in foreign jurisdictions		5		(10)	(3)
Other				4	3
Income tax expense/(benefit) 1				96	(47)

1. Represents income tax expense from continuing and discontinued operations. Refer to Note 21 ‘Discontinued Operations’ for the portion relating to the discontinued operations. 2. Includes LLT Group profit.

3. Includes accounting expenses for which a tax deduction is not allowed permanently.

4. Includes temporary differences recognised in a previous period but are subsequently 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.

5. 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. Also includes the effect of change in tax rates.

10. Events Subsequent to Balance Date

There were no material events subsequent to the end of the financial reporting period.

35 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment

Investment in the Development pipeline, joint ventures in property projects, the retirement sector, and more passive assets, such as property funds, drives the current and future performance of the Group. This section includes disclosures for property such as Inventories and indirect property assets such as Equity Accounted Investments and Other Financial Assets contained within the Statement of Financial Position.

11. Inventories	Note	December 2019 $m	June 2019 $m	June 2019 $m
Current
Development properties		797	1,031
Construction contract assets	16a	1,039	1,180
Other		1	27
Total current		1,837	2,238
Non Current
Development properties		3,558	3,345
Total non current		3,558	3,345
Total inventories		5,395	5,583

12. Equity Accounted Investments	Note	December 2019 $m	June 2019 $m
Associates
Investment in associates	12a	543	277
Less: Impairment		(3)	(7)
Total associates		540	270
Joint Ventures
Investment in joint ventures	12b	3,301	3,195
Less: Impairment		(19)	(13)
Total joint ventures		3,282	3,182
Total equity accounted investments		3,822	3,452

36 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment continued

12. Equity Accounted Investments continued

a. Associates	INTEREST	SHARE OF PROFIT	NET BOOK VALUE
	December 2019 % June 2019 %	December 2019 $m December 2018 $m	December 2019 $m June 2019 $m
Australia Development Lendlease Communities Fund 1 Investments Lendlease Sub Regional Retail Fund¹ Other			4 4 34 36 5 -
	20.8 20.8	- -
	10.0 10.0	(1) -
		- -
Total Australia		(1) -	43 40
Asia Investments Lendlease Global Commercial REIT Lendlease Asian Retail Investment Fund Lendlease Asian Retail Investment Fund 2 Lendlease Asian Retail Investment Fund 3			256 - 5 - 32 30 201 201
	24.3 -	(10) -
	48.7 -	14 -
	38.6 38.2	- (1)
	20.1 20.1	2 12
Total Asia		6 11	494 231
Europe Development Other		- -	4 4
Total Europe		- -	4 4
Americas Investments Other		1 1	2 2
Total Americas		1 1	2 2
Total Less: Impairment		6 12 - -	543 277 (3) (7)
Total associates		6 12	540 270

1. Although the Group has a 10 per cent ownership interest in Lendlease Sub Regional Retail Fund, it holds 20 per cent of the voting rights over the fund and has significant influence over the investment. As a result, the Group applies equity accounting for its ownership interest.

37 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment continued

12. Equity Accounted Investments continued

b. Joint Ventures	INTEREST	SHARE OF PROFIT	NET BOOK VALUE
	December 2019 % June 2019 %	December 2019 $m December 2018 $m	December 2019 $m June 2019 $m
Australia Development Circular Quay Tower Melbourne Quarter R1 Melbourne Metro 1 Victoria Cross Other 2 Investments Lendlease Retirement Living Trust Other	20.0 20.0 50.0 50.0 30.0 30.0 75.0 - 75.0 75.0		103 93 60 66 - - 110 - 9 16 1,427 1,397 10 12
		- -
		- -
		- -
		- -
		- (1)
		30 58
		(2) -
Total Australia		28 57	1,719 1,584
Asia Development The Exchange TRX Investments CDR JV Ltd (313@somerset) Paya Lebar Quarter	60.0 60.0 25.0 25.0 30.0 30.0		375 364 - 96 422 382
		(1) -
		7 2
		35 112
Total Asia		41 114	797 842
Europe Development Hungate (York) Regeneration Limited Intown SRL Joint Venture LRIP LP Silvertown Stratford City Business District Limited (International Quarter London) Victoria Drive Wandsworth Investments Treviso Other	50.0 50.0 50.0 50.0 20.0 20.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0		7 6 36 38 56 39 4 6 135 130 39 40 14 14 1 8
		1 -
		(1) -
		7 2
		(2) (1)
		1 4
		(2) (3)
		- -
		- (2)
Total Europe		4 -	292 281
Americas Development 277 Fifth Avenue 845 Madison Lendlease Towers LLC Americas Residential Partnership Other Construction Lendlease Turner Joint Venture	40.0 40.0 37.5 37.5 - 50.0 50.0 50.0 50.0 50.0		64 64 51 44 - 30 365 341 13 9 - -
		- -
		- -
		(25) (7)
		1 (1)
		- -
		10 17
Total Americas		(14) 9	493 488
Total Less: Impairment		59 180	3,301 3,195 (19) (13)
		- -
Total joint ventures Total associates		59 180	3,282 3,182 540 270
		6 12
Total equity accounted investments		65 192	3,822 3,452

1. Balance includes the Melbourne Metro equity accounted investment of $70 million (June 2019: $70 million) net of a hedge reserve of $70 million (June 2019: $70 million).

2. December 2018 balance has been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further details.

38 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment continued

12. Equity Accounted Investments continued

c. Material Associates and Joint Ventures Summarised Financial Information

Material associates and joint ventures are determined by comparing individual investment carrying value and share of profit with the total equity accounted investment carrying value and share of profit, along with consideration of relevant qualitative factors.

Income Statement	LENDLEASE GLOBAL COMMERCIAL REIT 1	PAYA LEBAR QUARTER	LENDLEASE RETIREMENT LIVING TRUST
	6 months December 2019 $m 6 months December 2018 $m	6 months December 2019 $m 6 months December 2018 $m	6 months December 2019 $m 6 months December 2018 $m
Revenue and other income Other expenses Income tax expense	23 - (58) - - -	152 462 (301) (20) - -	98 129 (59) (51) - -
Profit/(loss) for the period Other comprehensive loss	(35) - (5) -	(149) 442 - -	39 78 1 (3)
Total comprehensive income/(loss)	(40) -	(149) 442	40 75
Group’s ownership interest Group’s total share of: Profit/(loss) for the period Other adjustments	24.3% - (8) - (2) -	30.0% 30.0% (45) 133 80 (21)	75.0% 75.0% 30 58 - -
Total profit/(loss) for the period Other comprehensive income/(loss)	(10) - (3) -	35 112 4 15	30 58 1 (2)
Total comprehensive income/(loss)	(13) -	39 127	31 56

1. Lendlease Global Commercial REIT was listed on the Singapore Exchange on 2 October 2019.

The table below provides summarised financial information for those associates and joint ventures that are individually immaterial to the Group.

Income Statement	ASSOCIATES	ASSOCIATES	JOINT VENTURES 6 months December 2019 $m 6 months December 2018 $m¹
	6 months December 2019 $m	6 months December 2018 $m	6 months December 2019 $m
Aggregate amounts of the Group’s share of: Profit/(loss) from continuing operations Other comprehensive income
	16 13		(6) 9
	1 10		18 30
Aggregate amounts of Group’s share of total comprehensive income of individually immaterial equity accounted investments	17 23		12 39

1. December 2018 balance has been restated for discontinued operations during the year. Refer to Note 21 ‘Discontinued Operations’ for further details.

39 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment continued

12. Equity Accounted Investments continued

Statement of Financial Position	LENDLEASE GLOBAL COMMERCIAL REIT 1	PAYA LEBAR QUARTER	LENDLEASE RETIREMENT LIVING TRUST
	December 2019 $m June 2019 $m	December 2019 $m June 2019 $m	December 2019 $m June 2019 $m
Current Assets Cash and cash equivalents Other current assets	94 - 14 -	96 84 281 256
			31 34
			59 75
Total current assets	108 -	377 340	90 109
Non Current Assets Investment properties Other non current assets	1,488 - 19 -	3,316 3,263 2 -
			7,363 7,288
			2 2
Total non current assets	1,507 -	3,318 3,263	7,365 7,290
Current Liabilities Residentliabilities Financial liabilities (excluding trade payables) Other current liabilities	- - - - 48 -	- - 1,988 1,911 171 37
			4,762 4,759
			- -
			61 63
Total current liabilities	48 -	2,159 1,948	4,823 4,822
Non Current Liabilities Financial liabilities (excluding trade payables) Other non current liabilities	543 - 2 -	- - 75 64
			623 586
			124 146
Total non current liabilities	545 -	75 64	747 732
Net assets	1,022 -	1,461 1,591	1,885 1,845
Reconciliation to Carrying Amounts Opening net assets 1 July Total comprehensive income/(loss) for the period Acquisition/contributions Foreign currency translation for the period	- - (40) - 1,074 - (12) -	1,591 875 (149) 583 3 64 16 69
			1,845 1,720
			40 125
			- -
			- -
Closing net assets	1,022 -	1,461 1,591	1,885 1,845
% ownership	24.3% -	30.0% 30.0%	75.0% 75.0%
Group’s share of net assets Other adjustments	248 - 8 -	438 477 (16) (95)	1,414 1,384
			13 13
Carrying amount at end of period	256 -	422 382	1,427 1,397

1. Lendlease Global Commercial REIT was listed on the Singapore Exchange on 2 October 2019.

The table below provides summarised financial information for those associates and joint ventures that are individually immaterial to the Group.

	ASSOCIATES	ASSOCIATES	JOINT VENTURES December 2019 $m June 2019 $m
	December 2019 $m	June 2019 $m	December 2019 $m
Aggregate carrying value of individually immaterial equity accounted investments	284 270		1,433 1,403

40 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section B: Investment continued

13. Other Financial Assets	Fair Value Level 1	December 2019 $m	June 2019 $m
Current Measured at Fair Value
Fair Value Through Profit or Loss – Designated at Initial Recognition
Lendlease International Towers Sydney Trust	Level 3	-	87
Derivatives	Level 2	15	10
Total current		15	97
Non Current Measured at Fair Value
Fair Value Through Profit or Loss – Designated at Initial Recognition
Lendlease International Towers Sydney Trust	Level 3	156	151
Lendlease One International Towers Sydney Trust	Level 3	56	54
Australian Prime Property Fund – Industrial	Level 3	99	96
Australian Prime Property Fund – Commercial	Level 3	382	369
Australian Prime Property Fund – Retail	Level 3	67	74
Lendlease Public Infrastructure Investment Company	Level 3	40	40
Military Housing Projects Initiative	Level 3	209	211
Lendlease Asian Retail Investment Fund	Level 3	-	44
Parkway Parade Partnership Limited	Level 3	44	43
Other investments	Level 3	11	11
	Level 2	15	-
	Level 1	9	10
Total non current		1,088	1,103
Total other financial assets		1,103	1,200

1. Refer to Note 19 'Fair Value Measurement' for details on basis of determining fair value and valuation techniques.

a. Fair Value Reconciliation

The reconciliation of the carrying amount for Level 3 financial assets is set out as follows.

	December 2019	June 2019
Unlisted Investments	$m	$m
Carrying amount at beginning of financial period	1,180	1,529
Disposals	(91)	(493)
Gains recognised in Income Statement	18	106
Other movements	(43)	38
Carrying amount at end of financial year	1,064	1,180

The potential effect of using reasonably possible alternative assumptions for valuation inputs would not have a material impact on the Group.

41 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section C: Liquidity and Working Capital

The ability of the Group to fund the continued investment in the property and infrastructure pipeline, invest in new opportunities and meet current commitments is dependent on available cash, undrawn debt facilities and access to third party capital. This section contains disclosure 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. Borrowings and Financing Arrangements

14. Borrowings and Financing Arrangements
December 2019	June 2019
a. Borrowings – Measured at Amortised Cost $m	$m
Current Commercial notes 225	225
Total current 225	225
Non Current Commercial notes 1,528	1,502
Bank credit facilities 1,638	988
Total non current 3,166	2,490
Total borrowings 3,391	2,715
b. Finance Facilities
The Group has access to the following lines of credit: Commercial Notes Facility available 1,753	1,727
Amount of facility used (1,753)	(1,727)
Amount of facility unused -	-
Bank Credit Facilities Facility available 3,523	3,495
Amount of facility used (1,638)	(988)
Amount of facility unused 1,885	2,507
Bank Overdrafts Facility available and amount unused 124	124

Commercial notes include:

• £300 million of guaranteed unsecured notes issued in October 2006 in the UK bond market with a 6.125 per cent per annum coupon maturing in October 2021;

• US$400 million of guaranteed unsecured senior notes issued in May 2016 in the US Reg. S market under Lendlease’s Euro Medium Term Note Programme with a 4.5 per cent per annum coupon maturing in May 2026;

• S$300 million of guaranteed unsecured senior notes issued in April 2017 in the Singapore bond market under Lendlease’s Euro Medium Term Note Programme with a 3.9 per cent coupon maturing in April 2027;

• $225 million of unsecured medium term notes issued in May 2013 ($125 million) and June 2014 ($100 million) in the Australian bond market with a 6.0 per cent per annum coupon maturing May 2020 has been classified as current for December 2019; and

• $80 million of unsecured medium term notes issued as an A$ private placement in December 2018 with a 5.4 per cent per annum coupon maturing in December 2028.

Bank credit facilities include:

• £400 million club bank facility maturing in March 2023 drawn to $343 million as at 31 December 2019;

• $1,800 million syndicated cash advance facility maturing in December 2021 (Tranche A: $900 million) and September 2022 (Tranche B: $900 million) are drawn to $562 million. As at 31 December 2019, Tranche A was drawn to $562 million and Tranche B was undrawn; and

• $960 million A$ syndicated loan facility, maturing in March 2024. As at 31 December 2019, the $725 million Tranche A was fully drawn and the $235 million Tranche B was undrawn.

The bank overdraft facilities may be drawn at any time and are repayable on demand.

The Group has not defaulted on any obligations in relation to its borrowings and finance arrangements.

42 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section C: Liquidity and Working Capital continued

15. Issued Capital

15. Issued Capital
	LENDLEASE CORPORATION LIMITED		LENDLEASE TRUST
	December 2019	June 2019	December 2019	June 2019
	No. of Shares (m) $m No. of Shares (m) $m		No. of Units (m) $m No. of Units (m) $m
Issued capital at beginning of financial period	584 1,300 584 1,297		584 921 584 920
Distribution reinvestment plan (DRP)	- 4 - 3		- 1 - 1
Issued capital at end of financial period	584 1,304 584 1,300		584 922 584 921
Buyback at beginning of financial period On market buyback of securities	(20) (285) (10) (145) - - (10) (140)		(20) (67) (10) (33) - - (10) (34)
Buyback at end of financial period	(20) (285) (20) (285)		(20) (67) (20) (67)
Balance reflected in Retained Earnings/ Reserves 1	- 285 - 285		- 67 - 67
Issued capital at end of financial period	564 1,304 564 1,300		564 922 564 921

1. Stapled securities acquired as part of the Group’s on market stapled security buyback have been recorded in Retained Earnings for the Company and Buyback Reserves for the Trust. The program completed in February 2019.

a. Issuance of Securities

As at 31 December 2019, the Group had 564 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 2 March 2020. The issue price is the arithmetic average of the daily volume weighted average price of Lendlease Group stapled securities traded (on the Australian Securities Exchange) for the period of five consecutive business days immediately following the record date for determining entitlements to distribution. If that price is less than 50 cents, the issue price will be 50 cents. Stapled securities issued under the DRP rank equally with all other stapled securities on issue.

c. Terms and Conditions

Issued capital for Lendlease Corporation Limited comprises of 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.

16. Loans and Receivables	Note December 2019 $m June 2019 $m
Current
Trade receivables	772 1,012
Less: Impairment	(13) (13)
	759 999
Related parties	66 76
Retentions	464 330
Contract debtors	16a 254 349
Accrued income	16a 82 57
Other receivables	271 241
Less: Impairment	(1) (2)
Total current	1,895 2,050

43 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section C: Liquidity and Working Capital continued

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16. Loans and Receivables continued December 2019 June 2019
Note $m $m
Non Current
Related parties 51 38
Less : Impairment (1) (1)
50 37
Retentions 169 351
Other receivables 312 300
Total non current 531 688
Total loans and receivables 2,426 2,738
December 2019 June 2019
a. Contract Assets Note $m $m
Current
Contract debtors 254 349
Construction contract assets 11 1,039 1,180
Accrued income 82 57
Total contract assets1 1,375 1,586
----- End of picture text -----

1. Movements in contract assets during the period relate primarily to the transfer of balances into Trade receivables as the right to receive payment from customers becomes unconditional and contract assets transferred to Disposal Group assets held for sale. Refer to Note 21 ‘Discontinued Operations’ for further details.

17. Trade and Other Payables	Note December 2019 $m June 2019 $m
Current
Trade and accrued creditors	2,428 3,136
Construction contract liabilities	17a 430 1,404
Related parties	8 18
Retentions	582 476
Deferred land payments	79 98
Unearned income	17a 115 283
Lease liabilities 1	59 -
Other	94 309
Total current	3,795 5,724
Non Current
Trade and accrued creditors	10 7
Retentions	141 309
Deferred land payments	603 635
Unearned income	17a 185 183
Lease liabilities 1	440 -
Other	238 267
Total non current	1,617 1,401
Total trade and other payables	5,412 7,125

1. As a result of the adoption of AASB 16 Leases , lease liabilities have been presented separately. June 2019 comparatives are $nil as lease liabilities were not recognised under AASB 117 Leases .

As a result of the adoption of AASB 16 Leases , the Group has recognised amounts for right-of-use assets and lease liabilities. As at December 2019, the Group recognised right-of-use assets of $407 million within Property, plant and equipment.

44 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section C: Liquidity and Working Capital continued

17. Trade and Other Payables continued

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December 2019 June 2019
a. Contract Liabilities $m $m
Current
Unearned income1 115 283
Construction contract liabilities2 430 1,404
Total current 545 1,687
Non Current
Unearned income1 185 183
Total non current 185 183
Total contract liabilities 730 1,870
----- End of picture text -----

1. Movements in Unearned income relates primarily to residential pre-sales 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 and Construction contract liabilities transferred to Disposal Group liabilities held for sale. Refer to Note 21 ‘Discontinued Operations’ for further details.

==> picture [511 x 155] intentionally omitted <==

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18. Cash and Cash Equivalents December 2019 June 2019
Notes $m $m
Continuing
Cash 395 731
Short term investments 1 559
Total cash and cash equivalents from continuing operations 396 1,290
Disposal Group Assets Held for Sale
Cash 251 -
Short term investments 450 -
Total cash and cash equivalents classified as Disposal Group assets held for sale 21 701 -
Total cash and cash equivalents 1,097 1,290
----- End of picture text -----

45 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section D: Other Notes

19. Fair Value Measurement

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.

Note	December 2019	June 2019
	Carrying Amount $m Fair Value $m Carrying Amount $m Fair Value $m
Liabilities Current Commercial notes 14a Non Current Commercial notes 14a	225 229 225 234 1,528 1,676 1,502 1,640

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;

• 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; and

• 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 includes consideration of counterparty risk adjustments.

b. Fair Value Measurements

The valuation methods for each level 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; and

• 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.

20. Contingent Liabilities

The Group has the following contingent liabilities, being liabilities in respect of which there is the potential for a cash outflow in excess of any provision where the likelihood of payment is not considered probable or cannot be measured reliably at this time:

• There are a number of legal claims and exposures that arise from the normal course of the Group’s business, particularly in respect of claims for defects and under warranties and indemnities. In many cases, there is uncertainty as to whether a future liability will arise in respect to these items. Where it is probable there will be liabilities from such claims, a provision has been made for anticipated losses arising from such claims.

• In certain circumstances, the Company guarantees the performance of particular Group entities in respect of their obligations. This includes bonding and bank guarantee facilities used primarily by the Construction business as well as performance guarantees for certain of the Company’s subsidiaries.

• Securities Class Action

On 18 April 2019, Lendlease Corporation and Lendlease Responsible Entity (Lendlease Group) were served with a shareholder class action proceeding filed in the Supreme Court of New South Wales on 18 April 2019 by David William Pallas and Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund, represented by Maurice Blackburn. On 7 August 2019, Lendlease Corporation and Lendlease Responsible Entity (Lendlease Group) were served with a shareholder class action proceeding filed in the Supreme Court of New South Wales on 6 August 2019 by Martin John Fletcher, represented by Phi Finney McDonald. On 21 November 2019 the Supreme Court ordered consolidation of the two class actions into a single proceeding. The consolidated proceeding alleges that Lendlease was in breach of its continuous disclosure obligations under the Corporations Act 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.

46 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section D: Other Notes continued

21. Discontinued Operations

Discontinued operations relate to a component of the Group including its corresponding assets and liabilities that have been classified as held for sale and represent a separate major line of business or geographical area of operation. The group of assets and their corresponding liabilities (together referred to as a Disposal Group), may only be classified as held for sale once the following criteria are met: • The carrying amount will be recovered principally through a sale transaction rather than through continuing use; and

• The sale must be highly probable.

A disposal group is measured at the lower of its carrying amount and fair value less costs to sell. Where fair value is lower than the carrying amount, the difference is recognised as an impairment loss within the Income Statement.

The results of discontinued operations are presented separately in the Income Statement and Statement of Comprehensive Income. Comparatives have also been restated for the Income Statement, Statement of Comprehensive Income and corresponding Notes to separately disclose the results of the discontinued operations from continuing operations.

On 25 February 2019, the Group announced that its Engineering and Services business is no longer a required part of the Group’s strategy. Management have committed to a plan to exit from Non core operations of Engineering and Services. On 19 December 2019, the Group entered into an agreement with Acciona to sell its Engineering business for a purchase price of $180 million. The transaction, which is expected to complete in the first half of calendar year 2020, is subject to conditions including client and third party consents and regulatory approvals including Foreign Investment Review Board. The sales process for the Services business continues at 31 December 2019.

The previously disclosed cost estimate to exit the Non core segment of $450 - $550 million pre tax remains appropriate with $22 million expensed to date. Exit related costs include: implementation and selling costs; indemnities included in any sale agreement; and potential costs to cover concluding projects retained by the Group.

The cost estimate, together with existing provisions, is considered appropriate to cover concluding retained projects and to exit the Non core segment.

At 31 December 2019, the results of the Engineering and Services business have been presented separately from the Construction segment as Non core. Refer to Note 1 ‘Segment Reporting’ for details.

The results of the discontinued operations are as follows:

The results of the discontinued operations are as follows:
	6 months	6 months
	December 2019	December 2018
Results from Discontinued Operations	$m	$m
Revenue from contracts with customers	1,665	1,525
Cost of sales	(1,580)	(1,926)
Gross profit/(loss)	85	(401)
Share of profit of equity accounted investments	2	2
Other income	2	2
Other expenses	(83)	(88)
Profit/(loss) before tax for discontinued operations	6	(485)
Income tax (expense)/benefit	(1)	146
Total profit/(loss) after tax for discontinued operations as presented in the Income Statement	5	(339)

47 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section D: other Notes continued

21. Discontinued Operations continued

21. Discontinued Operationscontinued
	December 2019	December 2018
	Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue
Basic/Diluted Earnings Per Share (EPS) from Continuing Operations Profit from continuing operations attributable to members of Lendlease Corporation Limited (Company) $m Weighted average number of ordinary shares m
	276 276 248 248
	560 564 567 571
Basic/Diluted EPS from continuing operations cents	49.3 48.9 43.7 43.4
Basic/Diluted Earnings Per Share (EPS) from Discontinued Operations Profit/(loss) from discontinued operations attributable to members of Lendlease Corporation Limited (Company) $m Weighted average number of ordinary shares m
	5 5 (339) (339)
	560 564 567 571
Basic/Diluted EPS from discontinued operations cents	0.9 0.9 (59.7) (59.3)
Basic/Diluted Earnings Per Security (EPSS) from Continuing Operations Profit from continuing operations attributable to securityholders of Lendlease Group $m Weighted average number of stapled securities m
	308 308 355 355
	560 564 567 571
Basic/Diluted EPSS from continuing operations cents	55.0 54.6 62.6 62.2
Basic/Diluted Earnings Per Security (EPSS) from Discontinued Operations Profit/(loss) from discontinued operations attributable to securityholders of Lendlease Group $m Weighted average number of stapled securities m
	5 5 (339) (339)
	560 564 567 571
Basic/Diluted EPSS from discontinued operations cents	0.9 0.9 (59.8) (59.4)

The net cash flows for discontinued operations for the current and prior period are as follows:	The net cash flows for discontinued operations for the current and prior period are as follows:
	6 months	6 months
	December 2019	December 2018
Cash Flows from Discontinued Operations	$m	$m
Net cash inflow from operating activities	71	154
Net cash outflow from investing activities	(42)	(13)
Net cash outflow from financing activities	(2)	-
Net increase in cash and cash equivalents	27	141
The major classes of assets and liabilities held for sale are as follows:
	December 2019	June 2019 1
Disposal Group Assets/(Liabilities) Held for Sale	$m	$m
Cash and cash equivalents	701	-
Loans and receivables	367	-
Inventories	292	-
Other assets 2	540	-
Total Disposal Group assets held for sale	1,900	-
Trade and other payables	1,640	-
Other liabilities	60	-
Total Disposal Group liabilities held for sale	1,700	-
Disposal Group net assets held for sale	200	-

1 . The Group had no assets or liabilities recorded as held for sale at 30 June 2019. Comparative balances for the Statement of Financial Position have not been restated.

2. Includes $282 million of Property, plant and equipment and $183 million of Intangible assets.

48 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Notes to the Consolidated Financial Statements continued

Section E: Basis of Consolidation

22. Consolidated Entities

The material consolidated entities of the Group listed below were wholly owned during the current and prior period.

EUROPE

PARENT ENTITY

Lendlease Construction (Europe) Limited

Lendlease Corporation Limited Lendlease Construction (Europe) Limited AUSTRALIA Lendlease Construction Holdings (Europe) Limited Capella Capital Lendlease Pty Limited Lendlease Europe Finance plc Capella Capital Partnership Lendlease Europe Limited Lendlease Building Pty 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 Engineering Pty Limited Lendlease Singapore Pte. Limited Lendlease Finance Limited AMERICAS Lendlease Infrastructure Investments Pty Limited Lendlease (US) Capital, Inc. Lendlease International Pty Limited Lendlease (US) Construction, Inc. Lendlease Real Estate Investments Limited Lendlease (US) Construction LMB, Inc. Lendlease Responsible Entity Limited Lendlease (US) Public Partnerships, LLC Lendlease Services Pty Limited Lendlease (US) Public Partnerships Holdings LLC Lendlease Trust¹ Lendlease Development, Inc.

Lendlease Construction Holdings (Europe) Limited Lendlease Europe Finance plc Lendlease Europe Limited Lendlease Residential (CG) Limited Lendlease (Elephant & Castle) Limited

1. Lendlease Trust is a consolidated entity of the Group as the parent entity is deemed to control it. Lendlease Trust is not wholly owned.

During the current and prior period, there were no acquisitions of material consolidated entities.

During the current and prior period, the following disposals of material consolidated entities occurred.

			Gross
			Consideration
	Ownership Interest		received/
	Disposed	Date	receivable
31 December 2019	%	Disposed	$m
Victoria Cross Commercial Head Trust	25.0	21 December 2019	31
31 December 2018
Americas Residential Partnership	50.0	19 July 2018	172

49 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

Directors’ Declaration

In the opinion of the Directors of Lendlease Corporation Limited (the Company):

1. The financial statements and notes are in accordance with the Corporations Act 2001 , including:

2. a. Giving a true and fair view of the financial position of the Consolidated Entity as at 31 December 2019 and of its performance for the half year ended on that date; and

3. b. Complying with Australian Accounting Standards AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

4. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Directors:

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M J Ullmer, AO Chairman

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S B McCann

Group Chief Executive Officer and Managing Director

Sydney, 20 February 2020

50 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

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Independent Auditor’s Review Report

To the members of Lendlease Corporation Limited

Report on the Half-year Financial Report

Conclusion

We have reviewed the accompanying Half-year Financial Report of Lendlease Corporation Limited (the Company) as the deemed parent presenting the stapled security arrangement of Lendlease Group .

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the Half-year Financial Report of Lendlease Corporation Limited is not in accordance with the Corporations Act 2001 , including:

• [giving a true and fair view][of the ] Lendlease Group’s financial position as at 31 December 2019 and of its performance for the Half-year ended on that date; and

• [complying with ] [Australian Accounting ] Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

The Half-year Financial Report comprises:

• [Consolidated statement of financial position as at 31 ] December 2019;

• [Consolidated statement of profit or loss, ] Consolidated statement of comprehensive income, Consolidated statement of changes in equity and Consolidated statement of cash flows for the Halfyear ended on that date;

• [Notes 1 to 22 comprising a summary of significant ] accounting policies and other explanatory information; and

• [The Directors’ Declaration. ]

The Lendlease Group (the Group) consists of Lendlease Corporation Limited and the entities it controlled at the Half year’s end or from time to time during the Half-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.

Responsibilities of the Directors for the Half-year Financial Report

The Directors of the Company are responsible for:

• the preparation of the Half-year Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 ; and

• such internal control as the Directors determine is necessary to enable the preparation of the Half-year Financial Report that is free from material misstatement, whether due to fraud or error.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved und Professional Standards Legislation.

51 / Financial Statements / Lendlease Half Year Consolidated Financial Report December 2019

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Auditor’s responsibility for the review of the Half-year Financial Report

Our responsibility is to express a conclusion on the Half-year Financial Report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the Half-year Financial Report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Company’s financial position as at 31 December 2019 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As auditor of Lendlease Corporation Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a Half-year Financial Report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 .

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KPMG

D M McLennan

Partner

Sydney

20 February 2020