LENDLEASE GROUP — Investor Presentation 2017

Apr 27, 2017

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28 April 2017
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Engineering & Services Market Update

Attached is the presentation to be given today by Craig Laslett, Chief Executive Officer, Engineering & Services, Australia, Lendlease.

The presentation will be webcast live via www.lendlease.com

ENDS

FOR FURTHER INFORMATION, PLEASE CONTACT:

Investors: Justin McCarthy Mob: 0422 800 321

Media: Natalie Campbell Mob: 0410 838 914

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 Telephone +61 2 9236 6111 Exchange Place, 300 Barangaroo Avenue Facsimile +61 2 9252 2192 Barangaroo NSW 2000 Australia lendlease.com

Engineering & Services Market Update

Craig Laslett, Chief Executive Officer, Engineering & Services, Australia

28 April 2017

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Indigenous engagement and reconciliation

Lendlease’s vision for Reconciliation is one in which all our employees acknowledge and celebrate the proud heritage of Australia’s First Peoples and promote opportunities for career development, sustainable business growth and economic participation of Aboriginal and Torres Strait Islander Australians within our sector

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Engineering & Services

• A leader in civil infrastructure delivery and a specialist in infrastructure maintenance and asset management

• Best-in-class delivery capabilities across Roads & Bridges, Tunnels, Rail and Civil Infrastructure

• Trusted provider of services capabilities across Infrastructure, Telecommunications, Utilities & Infrastructure and Industrial & Resources

• Combined infrastructure capability key to delivering further value from the integrated model

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

STRONG CAPABILITY ACROSS ENGINEERING & SERVICES

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DESIGN & OPERATE &
CONSTRUCT MAINTAIN
TRANSPORT INFRASTRUCTURE
ROADS & BRIDGES
TELECOMMUNICATIONS
RAIL
RENEWABLES
CIVIL INFRASTRUCTURE
INDUSTRIAL & RESOURCES
TUNNELS
UTILITIES & INFRASTRUCTURE
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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Lendlease vision: to create the best places

Strategic framework

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Business model

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Competitive advantage

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Pillars of value

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Engineering & Services: Competitive Advantage

• Leveraging our integrated model to originate and deliver opportunities in gateway cities

• Businesses currently working on joint projects: Engineering; Services; Building; Infrastructure Development; and Property Development

• Track record of execution excellence over 50 years

• Involved in iconic Australian infrastructure projects

  • ANZAC Bridge; Pacific Highway; Hume Highway

• Civil works delivery on Communities projects

• Strong in-house technical capability in rail, tunnelling, mechanical and • Industry leader in safety and

• electrical, renewable energy, telco, sustainability, community

• and facilities management engagement and environmental

• • Strong financial backing of management

• Strong financial backing of Lendlease Group

• Industry leader in employment, skilling and training initiatives

• Self perform model

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Change image to a road pic
Pacific Highway 7
Engineering, Services
Melbourne Metro
Engineering, Property
Melbourne Metro
Development, Building,
Engineering, Services,
Infrastructure
Property
Development
NorthConnex
Engineering, Services
Northern Connector
Engineering, Services
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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Construction segment: Engineering & Services contribution

Backlog revenue by region ($b)[1]

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Backlog revenue ($b)

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Aus Services Asia
Europe
1.5 0.9 1.1
Aus Engineering
3.3
$20.5b
6.9 Americas
6.8
Aus Building
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Engineering & Services Other
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15.1 15.7
13.6
10.7 12.9 13.1
4.4 3.3 3.1 3.7 5.6 4.8
FY12 FY13 FY14 FY15 FY16 HY17
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Revenue by region ($b)[2]

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Revenue ($b)

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Asia
Aus Services
Europe
0.3
0.3 0.6
Aus Engineering 0.8
$6.3b
Americas
2.1
2.2
Aus Building
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Engineering & Services Other

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6.3 7.8
8.0 10.2
8.8
5.2
4.2
3.7
3.0
2.1 1.8
1.1
FY12 FY13 FY14 FY15 FY16 HY17
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1. As at 31 December 2016

2. Half year ended 31 December 2016, includes rounding

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Market opportunity for Engineering & Services in Australia

Major Road and Rail Construction[1,4] ($b)

Engineering Construction[1] ~$75b[2]

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Value of commencements, inflation adjusted[5]

Engineering Construction1 ~$75b2	Engineering Construction1 ~$75b2
Projected Composition1:
• Transport	~$30b
• Resources	~$15b
• Utilities	~$25b
• Other civil ~$5b
Sector outlook1,3:
• Transport
• Resources
• Utilities
• Other civil
Transport project outlook1,3,4:
• Major
• Minor

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16
13
Colours indicate individual projects
at commencement date
10
6
3
0
FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY24 FY26
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Major Road and Rail Construction[1,4] ($b)

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Value of work done, inflation adjusted[5]

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12
10
Major Road Major Rail
8
6
4
2
0
FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY24 FY26
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1. Lendlease Group Research estimates

2. Direction of activity versus previous decade

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1. Includes major projects > $500m

2. Estimated annual engineering construction activity in real terms, adjusted for imported component of mining

3. FY14 prices

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Sydney Metro
Central Station Main 10
Works
Melbourne Metro MAJOR
PROJECTS
PIPELINE
Outer Suburban
Arterial Roads,
Melbourne
Melbourne Airport –
Runway Development
Program
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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Responding to the market opportunity

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CERTAINTY OF OUTCOMES
PROJECT DISCIPLINED
SAFETY PEOPLE RISK
SELECTION DELIVERY
EXECUTION
EXCELLENCE
LEADERSHIP BUILDING KEY EFFECTIVE STRONG RISK LEADERSHIP
CAPABILITY PORTFOLIO MANAGEMENT
MANAGEMENT
Engagement Attract Portfolio Robust review and On time
& Develop Management control processes On budget
Empowerment Retain Framework Repeat work
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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Diversified engineering portfolio: Medium term Revenue Target of ~$4b

Medium term[2] outlook, per annum estimates

Diversified Portfolio

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• Road 50-70%
Sector mix • Rail 10-30%
• Other 10-30%
ADDRESSABLE
MARKET
• NSW 30-50%
Geographic
• VIC 30-50%
mix
>$35b • Other states 10-30%
• Mega 25-35%
PROSPECTS • Large 25-35%
Project mix [1]
• Medium 20-30%
~70% of • Small 10-20%
addressable
market • Origination discipline
Risk • Exposure limits
PURSUITS
Management • Contract risk
~50% of • Operational risk
prospects
Target
WINS • Revenue ~$4 billion
financial
• EBITDA margin > 5%
metrics
Target hit rate 1:3
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1. Mega > $750m, Large $300m - $750m, Medium $100m - $300m, Small < $100m 2. Represents 3 - 5 years

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Risk management – control and review process through the lifecycle

PROJECT STAGES

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STRATEGY
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ORIGINATION

CONVERSION

DELIVERY

Quarterly Business Review Process: management meetings to Monthly Reviews: project reviews review/manage business financial and operational performance held monthly

Limits of Authority: framework of limits to restrict and monitor the ability of employees to expose Lendlease to risk

Portfolio Management: review performance across clients, sectors, service

Investment Committee: detailed review of resources, budget, risks and capital strategy at regional and Board level

Centre of Excellence: provides knowledge sharing, governance and operational excellence and expertise at all stages

Global Minimum Requirements: comprehensive guidelines on minimum standards for environment, health and safety

Capabilities: assessment of experience, expertise, technical proficiency, capacity of people involved at each stage to guarantee execution excellence

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Execution Excellence: Award winning transformation of Sydney’s Barangaroo Reserve

Project of engineering firsts to transform the six hectare industrial site

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Engineering & Services

Provides strategic value to Group

• Earnings diversification that is countercyclical

• Key to achieving Australian Construction EBITDA target margin of 4-5%

• Integrated opportunities

• Contributes to gateway cities strategy

Australian infrastructure market attractive

• Infrastructure market has a strong medium-term growth outlook

• Longer-term growth underpinned by economic fundamentals and ongoing ‘catch-up’ expenditure

Positioned for growth

• Engineering & Services capabilities are strongly integrated to respond to the market opportunity

• Engineering – a leading tier 1 contractor with revenue target of ~$4 billion

• Services – partner of choice with revenue target of ~$1 billion

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Appendices

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Image: Gateway Upgrade North Project, Deagon Deviation, Queensland

ROADS CAPABILITY

A leader in road building

• Large plant and equipment fleet

• Large plant and equipment fleet

• • Self-perform capability

• • Precast facility and batching equipment

Capabilities

• Design

• Greenfield & Brownfield

• Elevated roads and bridges

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• Mechanical & Electrical

• Intelligent Transport Systems

• Turnkey delivery

• Network Operations & Maintenance

Example projects

• NSW: M1, M2, M5, M7, Hume, Pacific Highway

• • VIC: Pen Link, Westgate, Tulla/Calder Inter.

• • QLD: Gateway, Bruce, Ipswich, Tugun Bypass, Kingsford Smith Drive

• • SA: Port River Ex, Southern Ex, Northern Connector

• • WA: Mitchell Freeway, Tonkin Highway, Kwinana, Northbridge Tunnel, Graham Farmer Freeway

BRIDGE CAPABILITY

Experienced bridge constructor

• Road

• Rail

• Pedestrian

Capabilities

• Precast and in-situ solutions

• Precast girders, planks, arches, segmental bridge units

• Segmental, incrementally launched and balanced cantilevers

• Complex interchanges

• Refurbishments and upgrades

Example projects

• Anzac Bridge – Sydney

• Bolte Bridge – Melbourne

• Gateway duplication – Brisbane

TUNNEL CAPABILITY

Forefront of tunnel construction

• Design

• Planning

• Excavation and Construction

Capabilities

• Precast tunnel segments

• Roadheaders; drill and blast, TBMs

• Tunnel portals and stacks

• Mechanical & Electrical systems

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• Ventilation and control systems

• Operations and maintenance

Example projects

• Clem 7 – Brisbane

• Northbridge – Perth

• St Helena Ridge – M1

• Tugun Bypass – M1

RAIL CAPABILITY

Rail client services

• Multi-disciplinary project management

• Project construction

Capabilities

• Track construction

• Station construction and upgrades

• Overhead wiring

• Rail bridges

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Example projects

• Epping to Thornleigh 3rd track – Sydney

• Regional Rail Link B & E – Melbourne

• Caulfield to Dandenong Level Crossing Removal Project – Melbourne

• Bauhinia Regional Railway – Queensland

• Dingo to Bluff duplication – Queensland

CIVIL INFRASTRUCTURE CAPABILITY

Major economic infrastructure

• Transport

• Utilities

• Mining

• Defence

Capabilities

• Multidiscipline civil engineering

• Marine and port

• Airfield pavements & associated services

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• Dams

• Mine developments and infrastructure

• Energy infrastructure

Example projects

• Port Botany expansion, NSW

• Cotter Dam enlargement, ACT

• Caval Ridge mine infrastructure, QLD

• • Australian Marine Complex Service & Supply Base, WA

• • Adelaide Airport terminal apron expansion, SA

• • Blakes Crossing, SA, and Jordan Springs, NSW,

• Communities

OTHER CAPABILITIES

Sectors

• Telecommunications

• Renewables

• Utilities & Infrastructure

• Remediation and Environmental Services

Capabilities

• Design & Development

• Construction

• Operations & Maintenance

• Mobile Infrastructure

• Fixed & Intelligent Infrastructure

• Civil Engineering

• Contamination & Land Remediation

• Environmental Impact Assessment

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• Waste Management

Example projects

• Sydney Water

• Coliban Water

• NBN

• Telstra

• Barangaroo

Engineering Major Projects Backlog[1]

Project	Location2	Construction Value A$m3
NorthConnex M1/M2 Tunnel	NSW	1,283
Northern Connector	SA	985
Gateway Upgrade North	Qld	658
Oxley Highway to Kundabung, Pacific Highway	NSW	598
Caulfield to Dandenong	Vic	530
Kingsford Smith Drive	Qld	441
CityLink Tulla Widening	Vic	230

1. Major projects are as at 31 December 2016, Lendlease major projects >$100m

2. Locations are New South Wales (NSW), South Australia (SA), Queensland (Qld), and Victoria (Vic)

3. Construction value represents the Group’s share of the total construction value of the project

NorthConnex Tunnel, Sydney

• New motorway connecting the M1 and M2 in northern Sydney

• Twin 9km long, two lane tunnels with interchanges at northern and southern ends

• Integration work on the Hills M2 Motorway

• Constructed by a joint venture between Lendlease and Bouygues Construction for asset owner, Transurban

• Client : NorthConnex Company Pty Limited

• Construction value: $1,283 million

• Expected completion: FY20

Pacific Highway Upgrades, NSW

Nambucca to Urunga

• 22km duplication of the Pacific Highway

• 36 bridges, including the Kalang River bridge

• Design and construct contract

• Client : Roads and Maritime Services, NSW

• Construction value : $572 million

• Expected completion : FY17

Oxley Highway to Kundabung

• 23km duplication of the highway

• Bridges over the Hastings and Wilson rivers

• Design and construct contract

• Client : Roads and Maritime Services, NSW

• Construction value : $598 million

• Expected completion : FY18

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Kingsford Smith Drive, Brisbane

• Road widening from 4 lanes to 6 lanes from Eagle Farm to Hamilton

• Also includes improvements between Cooksley Street and Breakfast Creek Road at Albion

• Creates a tree lined boulevard to Brisbane city, including parks and pathways

• Design and construct contract

• Client: Brisbane City Council

• Construction value: $441 million

• Expected completion: FY19

Northern Connector, Adelaide

• Construction of a new six lane 15.5km road linking the Northern Expressway with the South Road Superway and Port River Expressway

• Four road interchanges

• Three lanes in each direction

• 16km path for cyclists and pedestrians

• Client: Department of Planning, Transport and Infrastructure

• Construction value: $985 million

• Expected completion : FY19

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Caulfield to Dandenong Level Crossing Removal Project, VIC

• Removal of nine level crossings between Caulfield and Dandenong

• Five new stations to be built at Carnegie, Murrumbeena, Hughesdale, Clayton and Noble Park

• Power and signalling upgrades between Flinders Street Station and Pakenham Station

• 22.5 hectares of public open space and shared pathways

• Lendlease is delivering the Caulfield to Dandenong package as part of an Alliance with CPB Contractors, WSP | Parsons Brinkerhoff, Aurecon, LXRA and Metro Trains Melbourne (MTM)

• Client: Level Crossing Removal Authority

• Construction value: $530 million

• Expected completion: FY19

Lendlease Communities Projects

• Services currently involved in nine Lendlease Communities projects as part of an ongoing integrated partnership

• Engineering has experience in Communities projects, providing earthworks at Jordan Springs, NSW and Blakes Crossing, SA

• Client: Lendlease Communities

• Construction value: circa $80 million[1]

• Expected completion: Ongoing

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1. Value of Engineering and Services work to be completed for Lendlease Communities in FY17

Optus National Maintenance, National

• Maintenance of the Optus and Uecomm network’s aerial backbone and customer cable infrastructure

• Partnered with Optus since 2009

• Client : Optus

Westlink M7, Sydney

• Operation and maintenance of the M7 motorway in Sydney

• Incident response services, under the name Westlink Services

• Client : Roads & Maritime Services, NSW

Sydney Water Delivery Management Contract

• Includes process, mechanical, electrical, civil, structural and commission works in Sydney Water’s treatment facilities, and network assets

• Individual projects range in size

• Integrated team with Sydney Water and other partners

• Lendlease has been delivering works for Sydney Water for 20 years, under various contracts

• Client : Sydney Water Corporation

ENGINEERING & SERVICES MARKET UPDATE – APRIL 2017

33

Major transport construction pipeline[1]

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6.5
5.2
3.9
2.6
1.3
0.0
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Major Road Construction[2] - By State ($b) (Inflation-adjusted (FY14), commencement terms)[3]

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9.0
7.2
5.4
3.6
1.8
0.0
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NSW

Vic Qld SA WA ACT

Major Rail Construction[2] - By State ($b) (Inflation-adjusted (FY14), commencement terms)[3]

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NSW
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Vic

Qld

SA

WA ACT

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1. Lendlease Group Research estimates 2. Includes major projects > $500m 3. FY14 prices

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ENGINEERING & SERVICES MARKET UPDATE - APRIL 2017

Important notice

This presentation (including the appendices) has been prepared and is issued by Lendlease Corporation Limited (ACN 000 226 228) ( Lendlease ) in good faith. Neither Lendlease, nor any of its controlled entities including Lendlease Trust (together referred to as the Lendlease Group ) makes any representation or warranty, express or implied, as to the accuracy, completeness, adequacy or reliability of any statements, estimates, opinions or other information contained in the presentation (any of which may change without notice). To the maximum extent permitted by law, Lendlease, the Lendlease Group and their respective directors, officers, employees and agents disclaim all liability and responsibility (including without limitation any liability arising from fault or negligence) for any direct or indirect loss or damage which may be suffered, howsoever arising, through use or reliance on anything contained in or omitted from this presentation.

This presentation has been prepared without regard to the specific investment objectives, financial situation or needs of any recipient of this presentation. Each recipient should consult with, and rely solely upon, their own legal, tax, business and/or financial advisors in connection with any decision made in relation to the information contained in this presentation.

Prospective financial information and forward looking statements, if any, have been based on current expectations about future events and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations expressed in or implied from such information or statements.

The Lendlease Group’s statutory results are prepared in accordance with International Financial Reporting Standards (IFRS) and are audited by KPMG. This presentation also includes certain non-IFRS measures in presenting the Lendlease Group’s results. Certain non-IFRS financial measures have not been subject to external audit or review.

A reference to HY17 refers to the half year period ended 31 December 2016 unless otherwise stated. All figures are in AUD unless otherwise stated.

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