Leighton Holdings has confirmed what more and more investors have been suspecting, that it is a wealth destroyer, not a creator and that if they are really brutal, its time as a listed company in Australia is now looking limited.
Another trading halt at the start of the week, and then another earnings downgrade with more losses taken in two black holes (the Brisbane airlink and the Wonthaggi desalination plant in Victoria).
"Circumstances on each project have conspired to bring about the results today, which are very frustrating," CEO Hamish Mr Tyrwhitt said in yesterday’s statement to the ASX.
That is something of an understatement; given those projects have been headaches now for well over a year.
Investors took the now familiar route for a reaction to bad news from Leighton by dumping the company’s shares.
Leighton shares tumbled $2.18, or more than 9% to a day’s low of $21.57 in trading yesterday, cutting the year’s rise to around 16%.
They ended at $22.16, still down more than 6% or a huge $1.59.
Both projects involving private construction of government-inspired infrastructure, cost Leighton hundreds of millions of dollars in losses and write-downs in 2011, now there’s more pain for those shareholders (outside the controlling German-Spanish major shareholder Hochtief/ACS) game enough to remain on the register.
The latest news of a $258 million dollar profit hit comes as no real surprise to many people, it’s just the quantum of the impact that surprises, especially as it was only five weeks ago that the company gave unchanged guidance for a $400- $600 million profit.
A fortnight ago, Leighton was chipped by the ASIC corporate regulator and agreed to a modest, $300,000 fine for its tardy disclosure practices in 2011.
This time it’s been quicker, but the pain has been just as surprising for some and more of the same for others who have become used to the company’s underperformance.
Leighton is facing a class action from angry shareholders who claim it withheld information last year over problems on some of its projects (Brisbane and Wonthaggi in particular) that later resulted in an earnings downgrade of almost $900 million.
But this latest $254 million hit to pre-tax earnings will cause more damage to the company and help convince more investors to avoid it because of dangers that might be present in its multi-billion dollar project portfolio, and in investments in places like Asia, India and the Middle East.
Mr Tyrwhitt is the third CEO in three years and in yesterday’s statement he blamed weather and poor productivity at the Brisbane Airport Link tunnel and the Victorian desalination plant for the latest earnings hit which has forced Leighton to employ more people on both sites so as to avoid penalty payments for late delivery.
Leighton said weather delaying the construction of tunnel ramps is partly responsible for a $148 million forecast profit cut from the Airport Link project while the $106 million slog from the desal project is due to "construction slippages", flooding and "overall productivity issues", Leighton said in a statement to the ASX yesterday morning.
The June 30 opening date remained realistic, he said.
The extra costs and delays will reduce Leighton’s expected underlying profit for the 2012 calendar (the company’s new financial year) from the $600 – $650 million previously forecast to between $400 – $450 million, the company said.
The company said first-half net profit to the end of June is likely to be in the $100-150 million range.
Leighton said it has no need to raise further capital and that it had orders totalling $44.5 billion.
The day is surely approaching when the company’s Spanish/German shareholders will launch a mop up bid to take control of what is still a company full of potential.
ACS and Hochtief need 100% of Leighton for two reasons: the first is the positive contribution to earnings, the second is to better control the company and end the earnings instability.
If they try this, they could very well launch a bid at a time when Leighton is bringing itself under control, with the bad weather in Australia gone and greater stability in the Middle East and some Asian markets (but question marks over India).
Leighton said completion of the Wonthaggi desalination plant has been delayed six months, with the project expected to be at full production by the end of this year.
That can’t come quickly enough for the company or its local shareholders.
