A major hike in the expected cost of remediating legacy hire-rise buildings for fire safety in the UK has plunged global construction group Lendlease into the red.
The firm has dramatically raised the anticipated cost of recladding buildings by nearly 50% to £151m since signing the Government safety pledge just after the 13 March deadline set by housing secretary Michael Gove.
Lendlease revealed its latest estimate in disappointing group results for the year to June 2023.
Tony Lombardo, Lendlease global chief executive, said: “Disappointingly, Lendlease reported a statutory loss after tax of A$232m (£119m), driven by non-cash losses in relation to industrywide retrospective UK Government action on UK residential buildings and lower property valuations in the investments segment.
He said the liability primarily related to buildings developed by house builder Crosby, acquired by Lendlease in 2005.
At the half-year, Lendlease put its liability at around £100m but by June 2023 this has jumped by an extra £51m.
He said the revised figure took into account market cost increases and additional information obtained on the existing portfolio.
The committed remedial spend will be spread over a period of at least seven years.
Lombardo said the estimate did not include potential clawbacks from third parties, including insurancer and the supply chain.
He said that Lendlease had now established a dedicated team to review its exposure.
Lendlease believes that the liability currently relates to 59 buildings, of which 58 were developed by Crosby, a company that Lendlease acquired to enter the residential development market in the UK.
He said that many of these buildings were completed or had commenced construction prior to Lendlease’s acquisition and that the firm no longer owned any of the buildings.
Lendlease still does not have documentation for a number of buildings.
Given we are at the early stages of this process, there are both risks and opportunities to the provision that has been estimated. Key risks include the addition of new buildings or new information in relation to already identified buildings, as well as the rising costs in the local market.
Key opportunities include the potential for bulk procurement, re-interrogating scope on tender pricing, and assessing various options in the delivery model.
Across the Europe division, which largely represents the UK, construction revenue fell 17% to £380m with EBITDA up from £2m to £5.6m.