On 9 November 2018, LendLease announced to the market that it had identified significant underperformance in its engineering division relating to a number of projects. This shocking underperformance required a previously unannounced provision of $350m, leading to a negative margin for the construction segment.
LendLease blamed lower productivity in post-tunnelling phases of the NorthConnex tunnel project (a tollway under construction in Sydney, Australia), as well as unforeseen remedial work and bad weather on the Gateway Upgrade North and Kingsford Smith Drive projects, for the underperformance.
On receiving news of this massive underperformance, there was a substantial market reaction which wiped $4.73 (approximately 27%) off the value of LendLease shares over the following three trading days. Top tier market analysts expressed “surprise” and “disappointment” at the scope of the construction segment’s underperformance and the consequent impairment.
On 25 February 2019, LendLease released its half-year 2019 results to the market. The results disclosed additional costs arising from underperformance in the engineering division. The share price declined $0.91 (approximately 6.4%) on 25 February 2019. By close of trade on 27 February 2019, LendLease’s share price had declined $1.35 (approximately 10%).