Annual Financial Report 31 December 2018
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Annual Financial Report 31 December 2018 Scentre Group Limited ABN 66 001 671 496 WorldReginfo - e2adb3a2-8d65-47c0-b0ad-0d8d0b9b0814 Annual Financial Report SCENTRE GROUP For the Financial Year ended 31 December 2018 Contents 1 Joint Chairman and Chief Executive Officer Letter to Securityholders 2 2018 Results Overview 3 Directors’ Report 30 Independent Auditor’s Report 33 Income Statement 34 Statement of Comprehensive Income 35 Balance Sheet 36 Statement of Changes in Equity 37 Cash Flow Statement 38 Notes to the Financial Statements 73 Directors’ Declaration 74 Corporate Governance Statement 81 Investor Relations 83 Members’ Information 84 Directory WorldReginfo - e2adb3a2-8d65-47c0-b0ad-0d8d0b9b0814 Joint Chairman and Chief Executive Officer Letter to Securityholders Dear Securityholder We are pleased to provide this Annual Financial Report of our Group’s We describe our 41 centres as ‘living centres’ because they are performance in 2018. extraordinary places where our customers come to gather and socialise, be entertained, dine, access services and experiences and Scentre Group was established in 2014 and our purpose has remained shop. Our ability to curate a product, service and experience offer constant ever since: ‘creating extraordinary places, connecting and that meets customers’ expectations is what sets us apart and enables enriching communities’. Our purpose has guided our culture and us to deliver annual sales of $24 billion, high levels of customer decision-making as we have grown our business into an extraordinary advocacy and annual customer visitation of 535 million, up 5 million. platform of 41 Westfield living centres which is now the 15th largest This consistently high visitation is unrivalled. entity on the ASX by market capitalisation. These factors explain why our occupancy has remained strong at Our financial performance for the year ended 31 December 2018 was 99.3%. Extraordinary retail partners who understand their customers strong with Funds From Operations (FFO) of $1.3 billion representing want to be located in extraordinary places that enjoy high visitation. 25.24 cents per security, up 3.9% and a distribution of 22.16 cents We continue to work closely with our retail partners to help them per security, up 2%. Statutory profit for the period was $2.3 billion better understand the value of physical stores and the role they play including a revaluation uplift of $1.1 billion. Scentre Group has total in attracting and retaining customers, building brands and influencing assets of $39.1 billion and assets under management of $54.2 billion. in-store and on-line sales. During the year, we successfully completed more than $1.1 billion of As we deliver on our purpose, we do so with a responsible, developments and added more than 106,000 sqm to our living centre sustainable business mindset. We want our customers to regard us as portfolio through projects at Westfield Plenty Valley in Melbourne; an essential part of their communities. During the year, we launched Westfield Carousel in Perth; Westfield Coomera on Queensland’s a new community grants and recognition program called Westfield Gold Coast, our first greenfield centre; Westfield Kotara in Newcastle; Local Heroes. Our 117 inaugural Westfield Local Heroes each received and Westfield Tea Tree Plaza in Adelaide. Each of these developments a grant of $10,000, totalling $1.17 million, to further their vital work in has enhanced the customer experience and contributed to high levels addressing social needs in our local communities. We will launch the of customer advocacy. The Group commenced the redevelopment second year of the program in March 2019. of Westfield Newmarket in Auckland in 2018 and is on track to complete this in late 2019, creating another extraordinary place for Retail continues to be a dynamic sector and the Board, management our customers to connect, gather, experience and shop. and our people are working hard to keep abreast of issues that may affect the Group. Given Scentre Group’s leadership position in the Our purpose encapsulates how we create a long-term sustainable sector, the pre-eminent quality of our living centres and management’s business that satisfies the needs of diverse stakeholders including focus on adapting to the constantly evolving retail landscape and our people, securityholders, partners, suppliers, customers delivering a superior customer experience which drives strong and communities. visitation and customer advocacy, our long-term view for the business The connection between purpose, people and performance is critical is positive. for our business as we continue to rise to the challenge of meeting We would like to thank you for your ongoing support of Scentre Group. dynamic customer expectations. We also thank our people for their commitment during 2018 Our organisational culture is led from the top and we engage with our and contributing to this year’s financial results. Our purpose will people on the most important issues for our business in many ways. continue to guide our execution in the year ahead as we keep Board members meet regularly with key members of the leadership creating extraordinary living centres that play an integral role in our team, participate in asset tours of our centres and attend development customers’ lives. openings where possible. Our people engage directly with the leadership team on issues that matter to them in informal and formal ways including ‘Team Talks’ which are broadcast live and accessible to all. We host live broadcasts from major development openings to bring our people closer to the latest ‘extraordinary place’ we have created. As CEO, Peter has a direct engagement program that includes meetings with new employees every quarter and lunches with new parents and their children to keep them connected to the workplace whilst on parental leave. We continue to make progress on our vision to be the place where talent thrives. Our focus on leadership and diversity and inclusion has contributed to high levels of employee engagement. Last measured in 2017, at 88% our engagement level places us in the top 2% of high Brian Schwartz AM Peter Allen performing companies globally. Our next survey will be conducted in Chairman Chief Executive Officer 2019 yet we know our engagement remains robust from a series of important measures. For example, our retention rates are high and of those that do leave us, 89% say they would recommend Scentre Group as a place to work. Diversity of experience and perspective is a recognised driver of a sustainable, high performance culture and during the year three new executives from outside the Group were appointed to executive leadership positions. This includes Chief Strategy and Business Development Officer, Cynthia Whelan, Director of Technology, Richard Webby and Director of Corporate Affairs, Alexis Lindsay. In January 2019, Mark Bloom advised us of his retirement from the role of Chief Financial Officer (CFO) which will take effect at our April meeting and we will pay tribute to his leadership then. Elliott Rusanow will succeed Mark as CFO upon his retirement. We are pleased to advise that Cynthia and Elliott will be recognised as Executive Key Management Personnel from 2019. WorldReginfo - e2adb3a2-8d65-47c0-b0ad-0d8d0b9b0814 SCENTRE GROUP ANNUAL FINANCIAL REPORT 2018 // PAGE 1 2018 Results Overview Scentre Group continued its strong operating performance, delivering its forecast full year growth in Funds from Operations. 2018 Financial Results 2018 FULL YEAR RESULTS Funds from Operations (FFO) $1,339.5 million, 3.8% growth FFO per security 25.24 cents, 3.9% growth Distribution per security 22.16 cents, 2.0% growth Assets under management (AUM) $54.2 billion, 6.3% growth Group’s share of AUM $39.1 billion, 8.0% growth Profit after tax $2,295.9 million Gearing 33.9% 2018 Operating Performance Comparable net operating income (NOI) 2.5% growth Portfolio leased 99.3% Lease deals completed number 2,686 Lease deals completed area 444,320 sqm Total lettable area > 3.8 million sqm, increase of 193,400 sqm 1 Customer visits per annum > 535 million, an increase of 5 million 1. Includes Westfield Eastgardens which was acquired during 2018. WorldReginfo - e2adb3a2-8d65-47c0-b0ad-0d8d0b9b0814 PAGE 2 Directors’ Report This Directors’ report provides information on the structure of our business, our financial performance for the period 1 January 2018 to 31 December 2018 (Financial Year), our strategies and prospects and the key risks that face Scentre Group (Group or SCG). Scentre Group is structured as a stapled entity: a combination of a share in Scentre Group Limited (Company) and a unit in each of Scentre Group Trust 1, Scentre Group Trust 2 and Scentre Group Trust 3 which are stapled and trade together as one security on the Australian Securities Exchange (ASX). For accounting purposes, the Company is the parent entity of the Group. This report covers the Company and its controlled entities for the Financial Year. 1. OPERATING AND FINANCIAL REVIEW We own and operate the pre-eminent retail property portfolio in Australia and New Zealand, with interests in 41 centres including 16 of the top 25 centres in Australia and 4 of the top 5 centres in New Zealand. We have an exclusive, continuing and royalty free licence to use the Westfield brand in Australia and New Zealand for our existing portfolio and any new centres in Australia and New Zealand which meet certain agreed characteristics. As at 31 Dec 2018 Total Centres 41 Gross Lettable Area (sqm)