Leighton Holdings seems to be stumbling from one problem to the next.
If it is not board and management instability, as we saw in 2011, poor management of project, which we also saw last year, or losses and write-downs here and offshore, another 2011 debacle, it’s a police inquiry into possible corruption problems in Iraq, as we found out about yesterday.
The news completely overshadowed the trading results for the six months to December, which are effectively the company’s 2011 financial year as it moves to a fiscal year based on the calendar, to bring it into line with parent Hochtief in Germany and its parent, ACS in Spain.
Leighton said the problem has been reported to the Australian Federal Police and involved a possible breach of its Code of Ethics involving oil export operations in Iraq which, if substantiated, may break Australian laws.
The possible breach related to payments that may have been made by Leighton’s subsidiary company, Leighton Offshore Pte. Limited, in connection with work to expand offshore loading facilities for Iraq’s crude oil exports, the company said in a statement.
Leighton shares fell 3.4% or 88 cents yesterday to a day’s low of $22.97 after the news was made public.
They later recovered fitfully to close at $23.34%, down 2% or 51 cents on the day.
The problem seems to be related to half a billion dollar project in Iraq won late last year.
Last October, Leighton disclosed it had won a $US518 million ($A485 million) contract from a Japanese government aid agency for two offshore platforms, a 75-kilometre oil pipeline and an offshore mooring system as part of a program to upgrade Iraq’s crude oil export capacity.
The contract was in Basra, southern Iraq and involved working with the Iraq South Oil Company, Leighton said at the time.
Leighton says it doesn’t know if there has been any wrongful or illegal conduct, or whether there will be any adverse financial consequences for the company.
The AFP investigation is at an early stage and, accordingly, Leighton said it is not in a position to make any further comment.
The news of the problem in Iraq is another distraction for management and the board trying to settle the company after the disasters and flood of red ink in 2011.
The company effectively told the market late last year that earnings had improved (but still found another $120 million in write-downs).
Yesterday it confirmed the guidance for the transition year, but also said that shareholders (Hochtief in Germany will be a major beneficiary), will pay a 60 cent a share dividend.
It is a way of signalling the board’s confidence that the group is through the worst of the past year’s woes. It is well covered by earnings a share which rose to $1.01, from the previous half’s loss of $1.33 a share.
The group earned a December half net profit of $344.9 million, up from the loss of $405.7 million posted in the same period of 2010.
Directors said the "main factors contributing to the positive net profit result were: a strong operating performance, largely driven by improved earnings from the Group’s operations in Australia and Asia; an after tax gain of $167 million from the sale of HWE Mining’s iron ore operation in the Pilbara, WA, to BHP Billiton Iron Ore; offset by after tax impairments of $49 million for the Group’s deferred equity commitment in BrisConnections and $50 million for the Group’s investment in the Habtoor Leighton Group."
In the recent update the board forecast an underlying profit of $270 million for the half, ahead of earlier guidance of $250 million thanks to improvements in Australia and Asia, as well as an easing in the write-downs and losses on projects such as Victoria’s desalination plant, and Queensland’s Airport Link and its Middle East business.
The group said "total revenue, including joint ventures and associates, for the 6 month transitional financial year from 1 July 2011 to 31 December, 2011 was $12.2 billion compared to $19.4 billion for the twelve month period to 30 June 2011.
"The major revenue generating markets for the Group were infrastructure $6.7 billion, resources $4.4 billion, property (including building work) $0.9 billion and Corporate $0.2 billion.
"The Group’s work in hand at 31 December 2011 was $44.6 billion. New work won, including variations and extensions to existing contracts, totalled $10.1 billion."
For the year as a while ending June 30, 2012 the company said it expects to earn a profit of around $600 – $650 million.
