Global developer and builder Lendlease will take a $350 million after-tax provision for the 2019 first half after more problems surfaced in its construction arm.
Investors were quick to punish the locally-listed global player, stripping 16 per cent from stock by 11am AEDT on Friday, taking it down to $14.68 and effectively burning up much more of Lendlease’s market capitalisation than the value of the provision itself.
Lendlease has been warning of underperformance in its engineering and services business for some time. In a statement on Friday, it revealed there has been further deterioration in the small number of projects previously identified.
The problems stem from lower productivity in the post tunnelling phases of NorthConnex, a twin nine-kilometre dual-lane tunnel linking Sydney’s M1 Pacific Motorway at Wahroonga, it said.
Problems at NorthConnex had also singled out by managing director Steve McCann as a key part of Lendlease’s underperforming construction segment in the company’s 2018 full result in August.
In the latest update, Lendlease also blamed excessive wet weather, access issues and remedial work arising from defective design on other projects.
“Today’s announcement about the Engineering and Services Business is extremely disappointing particularly given the underlying performance across Lendlease’s other businesses,” Mr McCann said.
“Our international pipeline of landmark urbanisation projects, especially those in Europe has materially grown in the last 12 months giving us earnings visibility well into the future.”
Lendlease said it was taking measures to mitigate the anticipated losses including “negotiations with third parties”.
“However, at this stage it is unclear as to the extent to which these negotiations will be successful to mitigate the underperformance,” the company said in a statement.
The property giant, which was worth almost $10 billion before the announcement, has now launched a “comprehensive review of the Engineering and Services Business in light of this underperformance”.
It is already making changes, appointing Hans Dekker in May this year as its head of building and engineering.
As part of the review, Mr Dekker is “identifying processes to reset and strengthen the operations in order to reduce the risk profile, and evaluate alternatives to reduce the volatility of earnings in the business”, the company said.
Lendlease reported a profit after-tax of $792.8 million, up 4.5 per cent, for its 2018 full year, after absorbing a slowdown in pre-sold residential sales and continued underperformance in construction.