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Lendlease remained in the red last year as the cost of remediating unsafe buildings in the UK wiped out the savings made by its restructuring the previous year. 

In its results for the year to 30 June 2023, the Australian firm posted a pre-tax loss from continuing operations of A$238m (拢122m) 鈥� an even heavier loss than the A$177m (拢90.5m) recorded the previous year. 

The losses, which came despite income rising 16% to A$10.2bn (拢5.2bn), were largely attributed by chief executive Tony Lombardo to 鈥渘on-cash losses in relation to industrywide retrospective UK Government action on UK residential buildings鈥�. 

Lendlease recorded a provision of A$295m (拢151m) for cladding remediation, up from the 拢114m it predicted at its interim results in February, with a note in its results statement explaining how the business had signed the government鈥檚 cladding remediation contract in March 鈥渟o as not to be subject to significant trade restrictions鈥�. 

The company had been one of 11 to miss the original deadline to sign the pledge. 

It has established a dedicated team to reviewing its exposure to the new building safety regulations and the firm鈥檚 current understanding is that its liability currently relates to 59 buildings. 

It claims 58 of these blocks were developed by Crosby, a company it acquired in 2005 to enter the UK residential market. None of these buildings are currently owned by Lendlease. 

The business says it has been in 鈥渋nitial contact鈥� with some of the building owners to establish the cost of remediation, which has been used to extrapolate the required provision. 

This was priced at A$200m at the end of 2022, but an additional provision of A$95m was added on 30 June 2023 to account for market cost increases and updated information received in respect of the portfolio. 

鈥淭his provision does not include anticipated recoveries from third parties, including insurances and supply chain,鈥� the company noted, adding that Lendlease was working to 鈥渕aximise鈥� third party recoveries. 

As well as the cladding provision, losses on property revaluations were also cited as a drag on the firm鈥檚 results. 

Revenue in the construction business hit $7.2bn, up 9% despite a decline in European activity. 

Lombardo said the firm had 鈥渞ightsized鈥� its construction workbook through the year to 鈥済enerate more predictable returns鈥� and continued its 鈥渄isciplined cost reduction approach鈥� after FY22鈥檚 major restructure. 

>>See also: We are entering a new era for building safety - but are we ready for the new regulator?

>>See also: 5 minutes with 鈥� Anna Evans at Lendlease

It anticipates that its current cost saving actions will generate pre-tax cost savings of more than A$150m (拢77m) annually, with roughly A$60m (拢31m) set to be realised in FY24. 

鈥淎 disciplined approach to cost management is especially important in the Construction segment where a recent spate of insolvencies demonstrates the risk inherent in this traditionally low margin segment,鈥� he said.  

鈥淭o improve profitability and reduce future risk, we鈥檝e made the decision to no longer undertake certain types of work, for example residential build to sell, and remain selective in our customer portfolio.鈥� 

The report went on to explain that Lendlease will only bid on external construction projects with a value of more than A$150m (拢77m). 

The company鈥檚 backlog revenue for construction stands at around A$8.7bn (拢4.5bn), down roughly 17% year-on-year.