Leighton Holdings (LEI) looks like a massive restructuring, with writedowns, losses as well as asset impairments.
That’s despite the group’s board and new management yesterday reiterating its full year earnings guidance as it reported a 20% fall in first half net profits to $291.3 million.
Leighton said it expected to deliver underlying profits after tax of between $540 million and $620 million for year to December, and reduce gearing to between 20% and 35% – its around 37% at the moment.
Leighton said its revenue for the half year rose 2% to $11.9 billion, and of that, construction revenues rose 5% to $7.7 billion.
Leighton will pay a first half dividend of 57¢ per share, 25 per cent franked, compared with a dividend of 45¢, 50 per cent franked a year earlier.
The new management has a restructuring review underway – there was no update yesterday on its progress.
Weak cash flows and poor results from key divisions Leighton Contractors and John Holland tell us that sometime in the next five or six months, the new controllers of the company, Spanish construction giant, ACS (through its majority owned German subsidiary, Hochtief) will take an axe to Leighton’s costs and asset values.
LEI 1Y – Leighton’s average interim result shows financial strains
Yesterday’s interim result revealed that Leighton’s cash outflows worsened, weakening to just $37 million in the six months to June as cash generated from operations was offset by a rise in net working capital.
Leighton’s new chief executive, Marcelino Fernandez Verdes, said in the statement the company was focused on reducing working capital. “We are improving the approach to working capital management on new projects and seeking to strengthen the balance sheet through the options we are considering as part of the strategic review.”
The restructure involves the likely sale of its John Holland construction business, and possible asset sales and write-downs on Middle Eastern and other offshore assets.
And Leighton’s financial pressures remain with the report revealing that the company continues to struggle to collect owed payments on projects, evidenced by the 10% blow out in the line item, in the half year to $5.5 billion from $5 billion a year earlier.
The company said its receivables balance would remain high until Australian liquified natural gas projects, which include Chevron’s Gorgon project in Western Australia, are completed, and it can negotiate recovery of amounts owed. That’s no certainty and can end in lengthy litigation and negotiations.
Operating profit from Leighton Contractors slid 58% to $121 million, while earnings from John Holland dropped 54% to $34 million.
And Leighton’s Asian, Indian and Offshore business swung to a loss of $12 million from a $22 million profit a year earlier.
Thiess was the company’s best performing division, with operating earnings rising 72% to $357 million while Leighton’s Al Habtoor joint venture in the Middle East reported a $2 million after breaking even a year earlier.
Leighton has net debt of $2.8 billion, up $657 million over the past six months, an outcome of the rise in working capital needs.
Total employees fell to 52,100 from 61,000 a year earlier, a drop of 15% and thanks to the early signs of what the new controllers of the company will be announcing in the next few months.
Leighton shares fell 2.4% to $22.10. ACS controls just around 74% of Leighton and the company is now an after thought for most investors in the market.
