Leighton Holdings will be more circumspect of the risks around new projects as the construction group reported a 20 per cent fall in first-half net profits to $291.3 million.
Leighton’s new Spanish owner, Grupo ACS, is asserting a more rigorous risk-management culture for the contractor as it battles to recover some $5.5 billion in owed payments on construction jobs, including a jetty contract for Chevron’s Gorgon liquefied oil and gas project in Western Australia.
Leighton increased provisions for owed debts at its Leighton Contractors and John Holland companies, which reported falling profits in the first half, because it wanted to improve the quality of earnings, chief executive Marcelino Fernandez Verdes said. “I’m not willing to keep increasing the underclaims position; I want to stop it and this is the first step.”
The CEO declined to comment on how much Leighton was owed on its Gorgon project, which is estimated to be facing about $1 billion in cost blowouts, but said installation of the jetty would be finished in the next month and the company was in negotiations with Chevron.
Despite also pulling out of East West Link, Leighton planned to actively pursue local infrastructure public private partnerships, and intended to bid for maintenance contracts as well as construction contracts, Mr Fernandez Verdes said.
“Australia is the only developed market in the world with a strong pipeline of infrastructure development. It is something we wish to capitalise on.”
Mr Fernandez Verdes declined to comment on the progress of a sale process for John Holland and other Leighton assets, but denied suggestions from analysts that losing the construction group would create more competition for Leighton.
Analysts expect Grupo ACS to use sale proceeds to pay down some $1.2 billion of net debt at Leighton and further increase its 70 per cent stake in the Australian company.
Leighton’s shares fell 55¢, or 2.4 per cent, to $22.10 amid investor disappointment over weaker cash flows.
Leighton’s cash outflows worsened, weakening to $37 million in the six months to June from $9 million in the same period a year earlier as cash generated from operations was offset by a rise in net working capital.
Net working capital rose by $914 million, while cash generated from operations was $877 million, down 5 per cent on the previous year.
Income from Leighton Contractors slid 58 per cent to $121 million after the previous year’s results were boosted by a $215 million gain on the sale of telecommunications assets, while income from John Holland dropped 54 per cent to $34 million.
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 income rising 72 per cent to $357 million, while Leighton’s Al Habtoor joint venture in the Middle East generated $2 million of income after breaking even a year earlier. Leighton’s total financial exposure to Al Habtoor fell slightly, down $37 million to $1.3 billion, due to debt repayments and favourable foreign exchange movements.
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.
