A demerger is often the go-to solution for companies weighed down with an underperforming division. But it might not stack up for under-pressure Lendlease.
This week, he’s requested the under-pressure construction and development group’s “key lieutenants” fly in from around the world and meet for a few days of strategy sessions. Last week, he toldSo far, unhappy Lendlease investors are prepared to keep backing Lombardo, who is almost three years into the top job and about halfway through his proposed five-year turnaround.
Proxy adviser Ownership Matters ranked Lendlease equal 13th for governance concerns among the ASX 100, mainly attributable to complex accounts, high executive costs and “sticky” management incentives even in a crisis. In particular, it had concerns with “a consistent mismatch between earnings and cashflow”, due to unrealised gains on developments being sold into Lendlease funds or joint ventures, and often realised years after profits are recognised.
For example, Lendlease has put aside more than $300 million to address cladding issues around builds from UK’s Bovis. In the UK, the government has said defect liability lasts up to 30 years. So what will the company deliver to show investors it is serious about bringing back capital from offshore projects? Morgan Stanley estimates there is about $2.9 billion of invested capital in the US and Europe.
“Their international development businesses have been cross-subsidised by their more profitable domestic business and also property investments they’ve used shareholder capital to fund. These businesses lost their right to exist long ago. The oxygen tap that is feeding those zombie international operations needs to be turned off.For its part, Lendlease hasn’t been standing completely still. It has made some progress in selling off underperforming assets. So far, it’s delivered about $2.
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