ASX-listed Lendlease on Monday announced a raft of changes as part of a strategic restructure that will include phasing out its US and UK construction businesses to bring $4.5 billion in capital back into the business. The move,which will deliver close to $1.5 billion in write-downs and cost thousands of jobs,was a key change sought by Lendlease investors John Wylie’s Tanarra Capital,Allan Gray and David Di Pilla’s HMC Capital.
The diversified property major has three divisions at present – development,construction and funds management – with a market value of $4.06 billion. The staff cuts would come from the overseas construction businesses and bring Lendlease’s total workforce down to 4400 people.
Lendlease CEO Tony Lombardo and the company’s board have been under pressure to make drastic changes.Oscar Colman
With the company to focus now on Australian projects and running its platform of international investments,investors remain cautious on the execution of the stated plan under the continued leadership of chief executive Tony Lombardo.
Lombardo,whose position had come under attack from investors,has retained the CEO job and will now meet disgruntled investors before heading overseas to talk to the investment joint venture partners.
John Wylie’s Tanarra Capital said the change in strategy announced by Lendlease was a step in the right direction. “We welcome it,” he said.
“It’s great to see the company prioritising investor returns as it looks to the future. From here,execution and a sustained focus on returns and capital allocation will be critical.”
Lendlease has created a new Capital Release Unit in which the asset sales of up to $4.5 billion will be housed. Once all the sales have been completed,the CRU will be disbanded.
There will also be a $500 million share buyback,a writedown of goodwill attached to the US and UK construction businesses,which arose because of the Bovis acquisition in 1999,and impairments of certain overseas development projects.
Tanarra said it will keep a close eye on the appointment of a new external chairman,with current chairman Michael Ullmer retiring in November,as well as the broader board renewal process and evidence of cultural change within Lendlease.
In its investor update strategy announced on Monday,Lombardo said he has retained the investments platform in international markets “for several compelling reasons”.
“Through the decisive actions announced today,a new Lendlease is emerging – one that is firmly anchored in the very best of our proud legacy,but less complex,more focused and fit for purpose,” Lombardo said.
“Importantly,we do not launch this strategy from a standing start. Significant work has already been undertaken,and we anticipate making further positive announcements in the near term on our progress.”
Investor reaction to the restructure was positive with Lendlease’s shares jumping almost 10 per cent. They closed the session at $6.36.
Ian Chitterer,vice president and senior credit officer at Moody’s Ratings,said Lendlease’s further asset sales,cost reductions and the exiting of underperforming businesses,combined with intentions to reduce debt and targeted gearing levels,were credit-positive actions.
“However,Lendlease’s credit quality over the next 12-18 months will still be heavily dependent on improving earnings,receiving proceeds from already announced transactions,and reducing debt levels,” he said.
Lombardo and the board,,said the company was committed to delivering on the changes outlined on Monday.
“The optimum path we have chosen is built upon the creation of lasting economic value.
“We will not walk away from commitments to our valued customers,and we will treat our people around the world with the care and respect they deserve as our business changes,” Lombardo said.
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