Gillam has more than renovation rescue ahead at Lendlease

The former hardware boss believes Lendlease can get its glory back. This involves ‘the right kind’ of risk.

Lendlease CEO Tony Lombardo has spent much of his time selling off businesses while also battling a cyclical downturn in commercial property.

Lendlease “needs to define risk in a more successful way” says John Gillam, the former Bunnings boss who is preparing to take charge of the board of the pressured real estate play from next month.

As incoming chair, Gillam declares he won’t waste any time in pushing through a reset of Lendlease, which itself has just come through a bruising shareholder battle and is trying to rebuild and regain its blue chip image. Importantly Gillam, the property outsider, believes Lendlease can grow again.

Lendlease chairman Michael Ullmer, left, with chair-elect John Gillam at their offices in Melbourne. Picture: Aaron Francis

He takes charge as chief executive Tony Lombardo is midway through a major overhaul. The CEO finally waved the white flag on Lendlease’s multi-decade international adventure in May. This reset was built around a pivot away from capital intensive and low-returning businesses offshore. The billions released would be used to pay down debt and reinvest in the Australian market.

Speaking to The Australian, Gillam says the strategy overhaul “really showed an entity that was facing properly into what it needed to do to correct its course”.

“There’ll be an intense focus that will continue to make sure that reset is successfully completed, because the prize for us is to be able to step up with growth,” Gillam says. To be able to get that point Lendlease needs to get the financial foundations in a strong position that will then open up new growth avenues, he says.

While Lendlease has made headway, he says, “make no mistake, there’s a lot to do”.

At Wesfarmers, Gillam built up Bunnings into a national powerhouse for more than a decade until 2016. More recently, as CSR chairman he led negotiations with French giant Saint-Gobain that saw the $4.3bn takeover of the Australian building products player. He is also Nufarm chairman and adviser to privately owned retailer Mecca.

The new chairman replaces six-year chair Michael Ullmer. The board overhaul was part of a peace deal reached with John Wylie’s Tanarra Capital, who had led a campaign agitating for Lendlease break-up to do better.

Lendlease CEO Tony Lombardo announced a major restructuring of its operations offshore back to Australia in May. Picture: Jane Dempster

Still, some investors were left underwhelmed by the naming of the incoming chair, with Lendlease’s shares falling on Monday in a broadly upbeat market.

At Bunnings, Gillam led the hardware major into the UK market through the Homebase acquisition. But what worked here didn’t worth there, and this quickly resulted in a costly and rare retreat for Wesfarmers. There are some similarities with Lendlease’s own high-cost international expansion over the decades, which is now rapidly being dismantled.

Gillam says growing companies “requires you to take risk, and that requires you to define what’s leverageable and what’s a close-step risk that’s more controllable”.

“If you don’t want to take risk, you put your money in the bank, and all investors want us to get a better return on money in the bank, so we’ve got to define risk in a more successful way.”

The focus in coming months will now be on Lombardo. It’s been a tough time since taking charge three years ago. He has spent much of his time selling off businesses while also battling a cyclical downturn in commercial property. Lombardo too had come under criticism for not moving fast enough during the public shareholder battle.

Gillam says Lombardo is a “very proven” executive. The two have already had informal meetings as Gillam was preparing for the role.

Lendlease has been hit by a downturn in the commercial property market but interest rates are starting to fall again. Picture: NCA Newswire/Gaye Gerard

Building relationships with the CEO and executive team will be key, Gillam adds.

“Alignment is crucial to success. If you’ve got a good strategy and you can align all of the elements to execute it well, then you’ll have less friction and you will get better results.

Something I look forward to is building my understanding of them quickly so I can help Tony and his team with that.”

There’s clearly a long way to go before Lendlease gets its glory back.

While shares have climbed 30 per cent from their June low, Lendlease remains a shadow of its former self, with a market capitalisation of $4.7bn. Significantly, this is still below the $4.9bn net assets sitting on its balance sheet.

The market is not yet putting any value on Lendlease’s growth agenda. In fact it’s putting a discount on the plans that Lendlease can make it great in Australia. This is where Lombardo and – now Gillam – will need to get out and sell blue sky, particularly beyond 2025.

Lombardo is about to get the cash from his $1.3bn sale of communities to Stockland. The competition regulator threatened to spoil the party, however it finally came around to the deal. This was a big step, with a target of $2.8bn of asset sales by end-June next year. Lombardo has hit nearly $2bn in asset sales, and he recently said he was confident of hitting the full target. Costs are being targeted. Still to come are another 300-plus job cuts, and another 760 to go in operations earmarked for sale.

A falling interest rate environment is taking the pressure off Lendlease, this is removing volatility around property. So too are return to office mandates across corporate Australia that are helping to lift sentiment across high end towers.

As part of the reset, Lombardo is pushing Lendlease into up-market property including a trophy development at Darling Point in Edgecliff.

Outgoing chair Ullmer says the appointment of Gillam is about a “turning point” for Lendlease.

Gillam is “very strong strategically, who’s clearly very tough in terms of what he’s delivered operationally,” Ullmer says.

“He’s clearly demonstrated a focus on financial outcomes and delivering for the security holders. So now is the time to move to somebody who’s really going to take forward what we’ve been delivering, and is actually going to accelerate that.”

[e-mail]

Originally published as Gillam has more than renovation rescue ahead at Lendlease