Shares in Lendlease have tumbled in response to a shock $350 million write-down announced by the construction and development giant on Friday.
Lendlease's market value continued to slide two consecutive days after the announcement, bringing the company’s total losses for the two trading days to about $2.2 billion.
Igniting the investor sell-off was Lendlease's surprise Friday announcement of further underperformance in the financial position of its engineering and services business.
The company's explanation for the write-down was due to “a number of issues including lower productivity in the post tunnelling phases of NorthConnex; and excessive wet weather, access issues and remedial work from defective design on other projects”.
While Lendlease said measures were being undertaken to mitigate the anticipated losses including negotiations with third parties it’s unclear as to the extent to which these negotiations will be successful to mitigate the underperformance.
Lendlease chief executive Steve McCann described the announcement as “extremely disappointing”.
“Particularly given the underlying performance across Lendlease’s other businesses,” McCann said.
McCann said the engineering and services business only contributes about 10 per cent of the company's profits and the rest of the portfolio was performing well.
“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.”
On Friday Lendlease shares fell 18.3 per cent to $14.25, which wiped almost $2 billion off the company’s value.
Lendlease is currently reviewing the poor performance of its engineering and services business.
McCann has not ruled out selling the engineering division after “a comprehensive review” saying that “nothing is off the table”.
“The review will include; our approach to risk appetite, our approach to the types of terms and conditions we’re prepared to accept on contracts, the range of the different types of projects that we’re prepared to be involved in, will be part of that,” McCann said.
To date, Lendlease has made changes to this business with the appointment of Hans Dekker in May 2018 as the group head of building and engineering.
Lendlease is part of the build on the Melbourne Metro. The company recently pulled out of the joint venture bid for the WestConnex Rozelle interchange, but is still building the third stage of the motorway.
McCann said Lendlease was “focused on making sure the WestConnex project would get off to a good start” and that the Melbourne Metro, while “off to a slower start than we’d like,” was a five-year project, so “it was too early to discuss”.
Lendlease is set to hold its annual meeting next week.