Leighton Holdings has reported a 41% drop in nine-month profit after booking further write-downs in the third quarter of the June 30 financial year and warned of a further 10% drop in full year profit guidance.
At the same time Leighton revealed that it would support the $60 million dollar raising from associate Macmahon Holdings and would lift its stake to 19.9% from around 17% via a sub-underwriting agreement for the issue.
Leighton, which is the country’s largest constructor, said net profit for the nine months to March 31 was $220 million, down from $375 million in the previous corresponding period.
The figure included the lower interim profit which included $175 million of impairment write-downs. In the third quarter, Leighton booked a further $15 million of asset impairments.
And said it expects to post a net profit of about $430 million in the year to June 30, down from February’s guidance of $480 million.
The shares, which had risen strongly late last week, drawing a query from the ASX, retreated rapidly yesterday, falling $1.83 or more than 7.5% to $22.52.
Leighton CEO, Wal King said in a statement to the ASX that the group’s 2008-09 revenue will approach $19 billion while net profit will be about $430 million, including the write-downs.
That would also be down 29% on its net profit of $607.9 million in 2007-08.
In its February guidance, Leighton said:
"For the 2009 financial year the Group expects to report full year revenue approaching $19 billion and a good underlying operating result after tax of approximately $650 million.
"The Group is forecasting to report net profit after tax of approximately $480 million, which includes the write down of investment values already recognised and to maintain the full year dividend at the same level as last year.
"The final result and full year dividend are however subject to market conditions for the remainder of this financial year."
Leighton paid a total dividend of $1.436 a share in 2008 and an interim of 60c in February (which was steady).
The fact that the reported profit will be down, with no mention of a target for the underlying result, must place a maintained full year dividend and unchanged final payout in some doubt (it would be around 83.6c, based on the 2008 figures).
Mr King emphasised the problems Leighton was facing:
"However the group is continuing to face pressure on its operating performance for the remainder of the financial year," Mr King said in the statement.
"The final result will be subject to market conditions, including currency fluctuations and asset valuations, for the remainder of this financial year.
"The company expects to pay a final dividend, consistent with the revised profit for the full year, both of which will be determined in August."
Mr King said the company’s work in hand at March 31 was $36.5 billion, up from $28.1 billion at the same time last year.
Revenue for the nine-months was $13.7 billion, up 37% on $10 billion in the previous corresponding period.
"We have a diversified portfolio of contracting and project development work across our core markets of infrastructure, resources and property, in Australia, Asia and the Gulf region.
"This diversity is helping to dilute the effects of the global financial crisis and positions us well for the longer term," Mr King said.
He highlighted contract wins for Leighton on mining and construction projects in Australia over the third quarter, but said Dubai had seen some contract losses.
A joint venture involving the Al Habtoor Leighton Group recently withdrew from a Dubai Airport project worth $350 million to the group, due to an inability to reach acceptable contract terms.
"The Gulf region, particularly Dubai, has experienced some uncertainty due to the impact of the global financial crisis," Mr King said.
"We have seen some new work awarded and other projects cancelled or deferred."
That was the second contract in Dubai that Leighton has lost so far this year.
Dubai is struggling and there were reports earlier in the week that the biggest property group, Nakheel (which owns a stake in Mirvac) had been given a cash injection by the Kingdom’s government to enable it to start paying contractors. The government and ruling family own 53% of Nakheel.
The fact that Leighton is supporting the issue, as are board members and senior management, should ensure that Macmahon Holdings’ plans to raise up to $60 million will succeed.
Leighton has a 16.99% stake in Perth-based Macmahon and will participate on a pro-rata basis and sub-underwrite part of the retail leg of the raising.
This could increase Leighton’s stake to a maximum of 19.9% of Macmahon’s share capital.
Macmahon chief executive Nick Bowen said in a statement to the ASX that the proceeds of the equity raising will be used to reduce debt, improve working capital flexibility and strengthen the balance sheet to help the company to weather current challenging market conditions.
"We believe that Macmahon is well placed to benefit from the promising outlook, particularly in the buoyant construction and infrastructure sector," he said in the statement.
"The new capital raised will also position Macmahon to take advantage of business opportunities in the construction sector and any recovery in the mining sector."
Macmahon also said board members who are shareholders, including Mr Bowen, will take part in the offer.
The transaction comprises an institutional placement of $25 million, an institutional entitlement offer of about $19.2 million and a retail entitlement offer of up to $15.8 million.
