Tony Lombardo’s ambitious $4.5bn plan to sell off Lendlease’s offshore development and construction business, outlined on Monday, has been given a strong vote of approval by shareholders.
But as he admits himself, the real challenge is delivery.
“I know what needs to be done, my team knows what needs to be done, and we’re doing it to make sure security-holder returns improve,” he told The Australian after the company’s announcement.
“The response to the share price shows they (shareholders) believe in the plan, now they will want to see proof of its execution.”
Lombardo’s next steps will be to have one-on-one discussions with major shareholders in Australia this week, before heading off to London for personal meetings with UK government officials to discuss how best to exit projects there.
The announcement of the most radical change in strategy in Lendlease’s corporate history sees a bold plan to surgically excise the many overseas projects that have been a major drain on the company’s earnings.
In doing so it reverses the major offshore expansion program that Lombardo himself was part of, and also buys some breathing space. Major shareholders such as super fund Aware, which is well down on its investment in Lendlease, have won their bid to have chairman Michael Ullmer announce his retirement, while others such as John Wylie’s Tanarra have won their battle for a much more accelerated restructuring of the company.
Whatever he feels personally, as a long time Lendlease employer of almost 16 years standing who has worked his way up to the top levels of the company, Lombardo is doing his best to paint himself as the leader who has the plan and the determination to take the drastic action needed to turn around the fortunes of what was one of the great brand names of corporate Australia.
Talking to Lombardo, one gets the impression that the public pressure from shareholders in recent months may have given him the political headwinds within the company to deliver the major surgery he knew was needed.
There will be those who seek to look back and ask where things went wrong for Lendlease.
Did it date back to the decision to buy construction firm Bovis in 1999? Did it date back to the gateway cities program under former chief executive Steve McCann, who oversaw plans for the big Elephant and Castle project in London, Paya Lebar Quarter in Singapore and Milano Santa Giulia in Milan?
Outgoing chairman Ullmer, who has been in his job since November 2018, made a mea culpa to analysts when opening up the analyst call on Monday, taking responsibility for the company’s performance under his chairmanship.
But he then sought to blame the company’s problems on the radical change in global property markets in recent years, with the advent of the pandemic in 2020, which dealt a blow to CBD office blocks and other major property developments, followed by a sharp rise in global interest rates.
But it is clear that well before that, Lendlease was already operating in too many locations, with too many bold development projects in place.
(Those with long corporate memories might remember the bold plans by the high-flying John Elliott to “Fosterise” the world in the eighties, which ended in such pain for his company.)
Lendlease went into 2020 overstretched with an expensive cost base and is now paying the price for the global property market downturn.
But looking back at “past history” – to use a famous tautology –-is not what Lendlease shareholders want or need right now.
Lombardo has sketched out what he says is a “very clear pathway” to restructure the company, and he needs to walk the talk.
He was at pains on Monday to argue that he had already been overseeing a major cost-cutting exercise at Lendlease ever since he took over as CEO in May 2021.
At his first public press conference as CEO, he promised to work to simplify Lendlease’s business, a plan that would cut 10 per cent of its workforce.
Since then, he has cut 30 per cent of the company’s workforce and already has a significant plan under way to sell off offshore assets.
The accelerated cost-cutting and asset sale plan announced on Monday will result in the company’s total workforce being slashed by another 35 per cent, leaving a much smaller Australian-based company with a workforce of only 4400, focused primarily on Australia, with a Singapore-based offshore investment platform.
Major investor John Wylie, a critic of the company’s strategy to date, welcomed the announcement as a “clear step in the right direction”.
But as he pointed out in a statement, Lendlease needs to be a “focused but not pressured seller of assets (while) prioritising investor returns over quick exits”.
Lombardo said Monday’s announcement had been the result of many weeks of planning that took in four board meetings, including the one last weekend, when final decisions were made.
He said he recognised the fine line between conducting a fire sale and being seen as a forced seller, and working his way through a complex process that delivers returns for shareholders.
“Part of my job is to balance speed with execution to realise (the right) value,” he said.
The challenge is that there are many moving parts in his plan – only a few of which are within his direct control. There are 17 different joint venture projects at various stages of development around the world with a wide range of partners, including government, which never moves fast.
The sales process will also be subject to the headwinds of global markets and interest rate changes, as well as the specifics of each project.
One could argue that the company has suffered from the big rise in interest rates in the past two years – Lendlease critics argue it spent too much and expanded too fast offshore in the heady days post the Global Financial Crisis, when the cost of capital was low.
But going into 2024 there is a global view that rates have peaked and the next move in many markets is down.
Taking a glass-half-full approach, the interest rate headwinds the company has faced in the past few years could become more like tailwinds from now on.
That said, the economy in Britain, where Lendlease has six major projects it needs to exit, is struggling, with no turnaround in sight and a new Labour government now looking likely.
In releasing his plan on Monday, Lombardo has made it easy for investors to judge his success by spelling out a clear timeline for his proposed plan of action.
Step one is the first 12 months, which involve removing the regional management structure, beginning a $125m pre-tax run rate of cost savings, a reduction of more than 1000 staff (mainly offshore) and selling off $2.8bn worth of assets.
The next step is another 1400 in lay-offs and selling off the international construction business, culminating in the sale of another $1.7bn in assets.
Just how much patience will the market have for his plan?
Can Lombardo achieve his vision for a new-look, slimmed-down Lendlease focusing mainly on the Australian market but with some profitable investments in Asia, largely in Singapore?
Monday’s announcement was a good start, but for Lombardo, now comes the hard part of delivering.
More Coverage
Why Australia will continue to rely on high migration
A low migration scenario in Australia would require a complete overhaul of our national business model. This is not likely and looking up to 40 years into the future, the only plausible migration scenario for the nation is a high one.
Grand Hyatt Melbourne checks in for retail revamp
The five-star hotel is being revamped to include a new retail podium that will complement its accommodation offering.