Shares of Lendlease, the renowned property group, tumbled just under 5% following the company's announcement to cut 10% of its global workforce, with the most significant reductions expected in offshore markets.
This unexpected move has raised concerns among investors about future earnings and the impact on the company's performance.
Lendlease has been actively restructuring its operations and divesting underperforming divisions as part of its efforts to recover from the depths of the COVID-19 crisis.
However, the news of job cuts caught investors off guard.
The listed construction and development company intends to lay off approximately 740 employees, pursuing its turnaround strategy despite the challenging climate for commercial projects.
The majority of the job losses will be offshore, affecting about 15% of its total offshore workforce, while roughly 5% of its local workforce is expected to be affected.
CEO Tony Lombardo's strategy aims to enhance operational efficiency and focus on executing the company's $121 billion development pipeline by bringing in capital partners.
Lendlease is shifting away from shouldering large projects on its balance sheet and instead collaborating with major international pension funds and local superannuation funds to work on its projects earlier in the process.
This strategic approach has received support from share market analysts and activist investors, who have been pushing the company to expedite its transformation.
Citi analyst Suraj Nebhani stated that Lendlease has a promising earnings growth outlook, particularly considering the weaker base in fiscal 2023. Nebhani also expressed confidence in the company's potential stake sale in the communities and retirement businesses, which could alleviate any potential funding needs.
Lendlease has attracted the attention of several major activist investors, including a wholesale fund run by listed HMC Capital, which acquired a near 3% stake in the company in April.
Other investors, such as Allan Gray and Tanarra Capital, also believe in Lendlease's capacity to turn its performance around as markets recover.
In an internal memo obtained by The Australian, Lombardo outlined the impact of the workforce reduction.
He explained that the most significant reduction would occur in the company's three international regions as part of their permanent shift toward becoming an investment-led company with a leaner operating structure.
Lombardo emphasised the need to continue growing funds under management to generate reliable and recurring income, focus on existing development projects that support fund growth, and streamline the construction workbook to minimise risk and maximise rewards.
He expressed confidence that these measures would position Lendlease to generate profits and withstand the occasional economic challenges in the regions where it operates.
This latest round of job cuts follows the reduction of approximately 400 positions in 2021, resulting in annual savings of $170 million. The additional cuts are expected to save the company an extra $80-$100 million annually starting from the fiscal year 2025.
Lendlease is also exploring the sale of certain divisions to lighten its balance sheet, including a stake in its $1.7 billion residential estates business and the remaining 25% interest in its retirement living operation.
Despite ongoing challenges faced by commercial property developers due to declining demand for office towers and depreciating large shopping centres, Lendlease has shifted its focus towards new luxury residential projects.
With support from major capital partners, the company is undertaking ventures like Sydney's One Circular Quay and build-to-rent towers, both domestically and internationally.
Lendlease intends to maintain its earnings guidance and ambitious target of completing $8 billion worth of projects annually. The company's priority now lies in executing its extensive global pipeline rather than pursuing new projects amid economic uncertainty and government constraints.
