Lendlease to slash workforce by 10pc

The famed builder, led by Tony Lombardo, is cutting 740 jobs with most of the pain falling offshore.

Lendlease shares plunged by more than 5 per cent on Tuesday after the famed builder revealed plans to sack 10 per cent of its global workforce with the heaviest cuts to fall in offshore markets.

Investors dumped the stock with the shares recovering slightly to close 42c lower at $8.13, wiping $290m off its market value, as they questioned the shock move and its impact on future earnings.

The property group has been trying to turn itself around from the depths of the coronavirus crisis and has been selling off under performing divisions but the surprise move threw investors.

The listed construction and development company will cut about 740 staff as it pushes ahead with its turnaround strategy despite the tough climate for commercial projects.

The bulk of the job losses will come offshore, with around 15 per cent of its total offshore workforce to be laid off. About 5 per cent of its local workforce is expected to be affected.

The move continues chief executive Tony Lombardo’s strategy to get the company running more efficiently and to focus on executing on its $121bn development pipeline by bringing in capital partners.

Lendlease is shifting away from undertaking large jobs on its balance sheet and is bringing in big international pension funds and local superannuation funds to work on its projects earlier.

The strategy had attracted backing from share market analysts and a group of activist investors, which have pushed the company to go even faster to get the company on track.

Before the shock staff cuts, Citi analyst Suraj Nebhani wrote that the firm expected a strong earnings growth outlook for Lendlease, especially given the weaker base in fiscal 2023.

“While reliance on development earnings create near term risk for Lendlease in a time of asset value declines and rising construction costs, we see a pathway to more normalised earnings over the next two-three years,” he said.

“We are less concerned than the market around potential funding needs, given Lendlease‘s potential stake sale in the communities and retirement businesses,” Mr Nebhani said.

The property developer has several major activist investors on its register, with a wholesale fund run by the listed HMC Capital in April emerging with a near 3 per cent stake in the under-pressure company.

The global developer is being pushed to simplify its sprawling operations and exit businesses where it does not have an advantage over rivals, as investors worry about the souring commercial property environment.

Sharemarket investors Allan Gray and Tanarra Capital also have stakes in the company as they believe its performance can be turned around as markets recover.

HMC Capital said in an update this month it had added to its holding and had “conviction that there is a path to material value upside if Lendlease is able to accelerate towards a more streamlined, focused, capital-light business”.

“We are encouraging the company to accelerate non-core asset sales to strengthen its balance sheet and consider opportunities for more ambitious business transformation with a greater focus on return on equity,” HMC said.

An internal memo from Mr Lombardo to staff, obtained by The Australian, laid out the impact of the cuts.

“The greatest reduction will be in our three international regions as they align to our permanent shift to being an investment-led company with a leaner operating structure, where resources are shared and not replicated in market,” he said.

Mr Lombardo said that in practical terms, the company would continue to grow its funds under management to generate more reliable and recurring income, take an improved focus on the development projects it already had in its pipeline that support funds growth, and on right sizing its construction workbook around jobs that carry less risk and generate greater reward.

“We need to stay on this journey. In turn, this will put us in better shape to generate profits and to face the, at times, bumpy economic conditions in the regions in which we operate,” he said.

The headcount reduction follows around 400 jobs being cut in 2021 when Mr Lombardo initially reviewed the business after he was elevated to the role of chief executive, which produced annual savings of $170m.

The latest cuts are expected to save the company an additional $80-$100m on an annualised basis from fiscal 2025, and came as it also looks to sell off some divisions to lighten the load on its balance sheet.

This includes selling a stake in its $1.7bn residential estates business and offloading the remaining one quarter interest in its retirement living operation, which it holds.

Market concerns about an equity raising had appeared to be shelved after the company replenished its balance sheet with another PLLACeS transaction, which hastened the receipt of about $600m proceeds from residential developments at Sydney’s Harbourside Barangaroo South project.

The company is still facing the headwinds that all commercial property developers are being hit with, as demand for office towers is down, and large shopping centres are losing value.

But Lendlease has swung towards undertaking new luxury residential projects, like Sydney’s One Circular Quay, with the backing of major capital partners and build-to-rent towers both in Australia and offshore.

Lendlease will keep its earnings guidance and aggressive targets of completing $8bn projects annually intact, with its focus now on executing its extensive global pipeline rather than striving for new jobs when economic uncertainty is constraining governments.

The company declined to comment.