LendLease was the first cab off the rank to alter earnings guidance for the year to June 30 – a day after closing off its books for the 2020-21 financial year.
The speed of the statement -a rather significant downgrade – begs the question why didn’t the company make the statement in June, before the end of the financial year because the detail in the statement would have certainly been known well before June 30.
Investors went arrggghhh and sold off the shares at the opening, driving the price to a low of $10.37 for the day – the lowest they have been since the big sell off in the midst of the Covid pandemic in February, 2020.
The shares steadied during trading to end at $11.14, down 2.8% on the day and a bit of a bumpy start to the 2021-22 financial year.
The reason for the weakness was the announcement that what the company described as “a challenging year of operations” – particularly in the UK – will limit its core operating profit for 2020-21 to a range of $375 million to $410 million.
“The challenging operating conditions associated with COVID-19 continue to affect each of the segments in which the Group operates globally,” LendLease said in the statement.
As a result, LendLease’s FY21 statutory profit is anticipated to be within the range of $200 million to $320 million after tax. Seeing its statutory profit for the six months to last December was $196 million, LendLease will earn between $4 million and $124 million in the six months to June.
A looming impairment on a troubled contract retained by the company after selling its engineering business, will wipe out most if not all of the second half result and slash the full year figure to a net result in the tens of millions of dollars (at best).
That could mean more losses for the company for a second year in a row
“While a range of mitigating actions have been taken to help the Group navigate this environment, the unpredictability of the pandemic has meant many global cities have been forced into extended lockdowns or re-entered lockdowns during FY21,” it said in a release this morning.
As an example, LendLease said London had extended its lockdown multiple times which has impacted commercial and residential customers from inspecting new products, and committing to leasing and purchasing; and investment partners delaying investment decisions.
LendLease said the new problem is in one of the two contracts it was forced to keep on its books after it sold its engineering operations to Spanish company, Acciona.
“Details have recently emerged in claims relating to historical projects completed prior to the sale of the Engineering business. While these claims are subject to dispute proceedings, which take time to evaluate, the Group anticipates accounting for an additional provision in the range of $90 million to $175 million after tax in FY21.
“Melbourne Metro, the remaining retained Engineering project in delivery, is progressing well and has not required any further provision,’ LendLease reassured investors.
The company said its balance sheet and liquidity position remain strong, with gearing expected to be below the bottom end of the target range of 10% to 20%.
The company said new CEO Tony Lombardo – who recently replaced Steve McCann – is currently undertaking a wide-ranging review of the business.
That will almost certainly see more losses and write downs as he reshapes the company the way he wants it and engages in a bit of ‘kitchen sinking” to lump as many losses into a result close to the end of the reign of the old CEO.
LendLease said it will provide an update on the outcomes from the review at the 2020-21 results announcement on August 16.
