Sorry, see below cut and paste of article. Credit to AFR....Wylie urges Lendlease to fix ‘arrogant’ cultureOne of Lendlease’s largest shareholders says the property giant is bureaucratic, arrogant and top-heavy, and has urged the company to offload its entire international business “not just for future success, but for its survival”.In a detailed, seven-page proposal to the Lendlease board, Tanarra Capital founder John Wylie said the $4.3 billion company was “unfocused and overextended with multiple, often-unrelated activities spread across four continents”, and he called for Lendlease to exit international construction, which he dubbed a “disaster”.“It’s been a disaster … a business that has generated $33 [billion] in revenues since 2017 for only $170 [million] of profits is simply unsustainable,” Mr Wylie wrote in the letter.John Wylie with Tanarra colleagues Vid Rangaswamy and Lee Mickelburough. Eamon GallagherFounded by Dutch immigrant Dick Dusseldorp in 1958, Lendlease has had an outsized influence on corporate Australia. Since its inception, the property developer has punched above its weight, shielding Westpac from corporate raiders, and owning insurer MLC, which proved a cash cow that subsidised its volatile property business until its sale to National Australia Bank for $4.6 billion in 2000.Yet it has drawn scorn from shareholders, who have watched its market cap slump to $4.3 billion from $11 billion in 2000, when the company – cashed up from the sale of its MLC business – embarked on global expansion. Allan Gray, another major investor, has described Lendlease as a “mess”, while David Di Pilla’s HMC Capital in August urged the group to accelerate asset sales and simplify the business to create value for shareholders.RELATED QUOTESLLCLendlease$6.325 1.20%1 year1 dayApr 23Jul 23Oct 23Apr 246.0006.7507.5008.2509.0007.930 at 18/5/23Updated: Apr 4, 2024 – 1.05pm. Data is 20 mins delayed.View LLC related articles AdvertisementMr Wylie also criticised Lendlease’s company culture. He said, “former company insiders” had found it “risk averse and siloed” with too many management layers and “cases of public in-fighting between divisions”. “There is simply too many people and not enough role accountability. Much of this flows from the overextended global business model the company has pursued,” he wrote in the letter obtained by The Australian Financial Review, adding that staffing needed to be “slim-lined”.“Ever since Tony Lombardo was appointed CEO in 2021 and embarked on his business ‘reset’ and simplification strategy, the asset base has increased from $15.5bn to $16.9bn at the end of calendar 2023,” Mr Wylie wrote, adding shares were down 47 per cent.“The company has now finished with its reset phase and has moved into a create phase, which implies even further capital investment.”But Mr Lombardo told the Financial Review on Wednesday that Lendlease had already “simplified the organisational structure and slimmed management layers”, resulting in a $320 million reduction in costs. The company also sold military assets in the United States and offloaded 12 Australian communities projects for $1.3 billion last December.“In construction, we’ve closed central and west coast operations [in the US] to simplify the business and build a better portfolio with less surprises and improve the performance of the business,” Mr Lombardo said in an interview.This is not the first time Mr Wylie has called for change at companies his investment firm – which had a down year in 2023 – has bet on. Tanarra advocated for Tabcorp to split its lotteries and Keno business from betting, and the investor criticised pathology group Healius last November, saying the business had been run poorly, and that management’s decisions lacked an understanding of the industry.Eight suggestionsInstead, Mr Wylie’s Tanarra – which owns some 3.5 per cent of Lendlease – outlined eight points for the company to take on board, from abandoning its current strategy to taking a “knife to costs” ahead of the company’s investor day next month.Mr Wylie said Lendlease was best-placed to compete in Australia, where returns on capital were 15 per cent and 18 per cent in the past two financial years, versus overseas returns of 3 per cent in 2023 and 2022. The growth, he said, came from investing in build-to-rent strategies, mixed-use urban regeneration and affordable housing.“The company’s quest for international growth … has diluted returns significantly from your high return Australian business and done real damage to the security price,” the letter to the Lendlease board reads, suggesting the international operations be placed in a separate vehicle. In Mr Wylie’s view, that vehicle would “begin as a discrete asset portfolio” that could raise approximately $4 billion in “an orderly value-preserving way”.“The case for a demerger should be comprehensively analysed at investor day – on the basis of ‘if not, why not?’,” he wrote. “At present, the company’s position is it intends to have 40-60 per cent of its capital base in Australia – which is absolutely ‘two bob each way’.”Mr Lombardo said the company decided 18 months ago to scale back new developments to “select Australian cities and Singapore”, where it was more competitive.Last December, Lendlease cut more than 700 jobs, and overall, the company’s global staff count has reduced to about 6800 from 12,500 when Mr Lombardo joined.“We constantly work on strategy with our board. There is more to do to get the right security-holder returns. We are aiming to further simplify the business and, as a management team, we’re working on what the appropriate overhead costs are to manage Lendlease,” Mr Lombardo said.Cultural resetBut Mr Wylie, a former investment banker at Credit Suisse and Lazard, has urged the Lendlease board to do more than cut jobs. He wants a “complete cultural reset”.“Blow up the bureaucracy, bloat, excess layers of management, layers of leadership committees, the 700 or so people in finance, 200 in HR and 110 in sustainability. Commit to being a lean and efficient company, with real job accountability,” Tanarra wrote in its letter to the company’s board, pointing out that Lendlease’s market cap was $632 per employee, compared with $7219 at peer Stockland and $11,733 at Charter Hall.“Be transparent about the cost savings, rather than burying them in future development margins in a way that can never be verified,” the letter reads.The proposal also suggested Lendlease set more ambitious return-on-equity targets.The company’s current 8-10 per cent target was “unambitious and inappropriate” for Lendlease’s risk profile, and Mr Wylie said that he believed the company should be generating returns in the mid-teens. “Investors can now get 8-10 per cent returns in low-risk credit, why would they take on all your economic market, operational, cost escalation, contractual and financial risk to generate that?”He also said Lendlease’s growth targets were a “product of the era of free money”, when interest rates were near zero. “Drop the growth-for-growth’s sake growth and volume targets,” Mr Wylie said. He suggested Lendlease could exit “unpredictable projects” such as Euston Station in the United Kingdom.In Mr Wylie’s view, Lendlease also had to improve its relationships with investors, increase its transparency around financial statements, stop the “death by a thousand cuts” approach during earnings and take conservative provisions “on questionable projects”. “Where and when will the next landmine go off? For example, many … believe further impairments are likely at the Victoria Cross office project in North Sydney, which is still only 6 per cent leased despite nearing completion,” he said.“Moving Lendlease staff to North Sydney to fill a vacant building cannot be the optimal overall solution.”
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