Leighton Holdings, Australia’s biggest contractor, has cut its interim dividend after reporting a 25% slide in half year profits and revealing a 6% reduction in its full year earnings estimate.
The dividend was cut to 60c a share from 65c a share after earnings per share dropped to just 72c a share from 96.9c in the December, 2009 half year.
A combination of losses in the Middle East and one major Australian project, the impact of the strong Australian dollar, bad weather and the floods in Queensland hit the company’s bottom line in the six months to December 31.
And the impact will be felt this half as well.
"The profit impact from the Queensland floods and excessive wet weather in Indonesia in the period to 31 December 2010 was approximately $40 million and, combined with other major wet weather events in the second half, is expected to impact on the Group’s full year results by some $100 million for the full year," directors said yesterday.
To counter this the company under new CEO, David Stewart has cut non-essential spending, made some senior management and organisational changes and has started reviewing some of the company’s investments such as the stake in listed developer, Devine Ltd.
Leighton told the ASX yesterday it said it now expected annual profit of around $480 million, down from an earlier forecast of $510 million, as the devastating floods have hit its mining contracting business in Queensland and a desalination project in Victoria.
The actual fall might be larger because its unclear if the decline forecast is in net profit after tax or in operating profit (i.e. before the profit on the sale of the Indian business).
Net profit fell to $216.7 million for December 2010 six months, from $288.9 million a year earlier.
Deducting a profit on the recent sale of the company’s Indian business, the result fell well short of analysts’ forecasts. Directors said they were "disappointed"
The shares reacted; losing ground from the opening after the result was released prior to trading starting.
But they then bounced to up 26c at $30.97.
Leighton says cost overruns on its troubled Brisbane Airport Link project, wet weather in Queensland and Indonesia and the high Australian dollar had contributed to the result.
The Middle East construction business was continuing to suffer, as was the Australian property market, Leighton said in yesterday’s statement.
The company has taken a $100 million impairment on its 45% stake in the Gulf-based Habtoor Leighton Group, due to the lack of new work and losses on pre-acquisition projects.
The carrying value of Al Habtoor has been written down to $845 million, from a valuation of around $1.4 billion at June 30, 2010.
New chief executive David Stewart, who replaced veteran Wal King, said the result was disappointing, but added that Leighton had a record amount of work in hand.
"While we have issues to deal with, which we are, Leighton has a record $45.6 billion of work in hand and most of our major markets – Australian infrastructure and resources, and most of Asia – are very positive," he said in the statement.
The recent floods in Queensland, and wet weather in Indonesia, would cost the group around $40 million over the half year and $100 million over the full year, the company said.
Mr Stewart said he was also conducting a strategic review of some of Leighton’s investments.
He had frozen discretionary spending and was seeking to cut overheads to return margins to "the sort of return on equity we have traditionally earned".
"We are bringing a rigorous approach to the existing and any new businesses and are focused on reducing costs and increasing margins so as to return Leighton to its historic performance levels," he said.
Mr Stewart has also put the cleaners through senior managers; it seems from yesterday’s statement.
Bill Wild as deputy chief executive, Peter Gregg as chief financial officer and Stephen Sasse as general manager of organisational strategy. And Leighton International managing director David Savage would retire this year.
"With the sale of the Indian business, we are re-structuring Leighton International with Malaysia and Singapore to report to Leighton Asia, and Bill Wild to be responsible for offshore oil and gas and the re-structured Indian operations," he said.
Leighton sold 35% of its Indian business during the year, forming a joint venture with Indian construction giant Welspun Group, for $US104 million ($A104.1 million).
Mr Stewart said Leighton had allocated resources to the Brisbane Airport Link, which the company described last November as Australia’s "most complex infrastructure job".
Work on the tunnel has been mired in difficulties with access, design and engineering, on top of the heaviest rain in Brisbane in a hundred years.
"The financial performance of Brisbane’s Airport Link, announced in November 2010, was obviously a disappointment, but the project remains on track for completion in the middle of next year," Mr Stewart said.
Mr Stewart said the group was in a position to win $8 billion worth of projects over the next 12 months, and was in the preferred position for around $4 billion of contracts.
Directors said in the statement that "At 31 December the Group’s work in hand reached a outstanding level of $45.6 billion with a record $16.1 billion worth of
