The social housebuilder and construction group managed an operating profit of £238 000 compared with a £415 000 loss the year before but was hit by £3.5m in exceptional items.
Chief among these was a £2.9m provision after a review of the company's non-core assets.
Lovell also set aside £600 000 to cover the cost of its failed reverse takeover of contractor Mansell (11 December, page 18).
Despite the problems, finance director Paul Sellars said he is optimistic about the company's prospects improving.
The company has been slowly turning around since reporting a £33.5m loss in 1995.
He said: "We agreed five-year credit facilities with our banks in February last year and we are working well within the limits.
"Our order book stands at £282m, turnover is up and we are confident about the coming year." Lovell's provision includes £1m to cover potential claims on a problem contract.
Sellars refused to reveal details of the contract, saying negotiations are continuing.
He said: "We will sort it out between us, we will not let it develop into a full-blown legal row." He said the company will be concentrating on continuing to reduce its £26m debt.