TAKING a contrary view of the world always gets a headline, and in Leighton Holdings’ case, it released a poor set of interim results but went against the prevailing view that investment activity is declining.
The positive spin didn’t do a lot for its share price, which fell against a rising market.
In a statement to the ASX, Leighton boss Hamish Tyrwhitt said: ”Contrary to commentary suggesting a decline in investment activity in Australia, the group’s addressable markets have never been stronger.” It backed it up with record work in hand of $47 billion, reaffirmed its full-year profit guidance of $400 million to $450 million and indicated it had a pipeline of $29.9 billion worth of work that it had tendered for as at June 30.
This upbeat outlook came as Australian Industry Group (AIG) released a worse-than-expected construction index for July that showed the industry continues to contract at an accelerating rate.
AIG’s construction index dropped 2.2 points to 32.6 for July. (Anything below 50 means the industry is going backwards.)
It reflects a growing chorus of mining executives who are warning that some big projects will have to be mothballed due to a blowout in labour and equipment costs.
But for Leighton, the more projects it can win the better it is for its bottom line. As soon as a project is started a construction company can start booking a profit on a monthly basis. Some companies wait until a project is about 20 per cent complete before booking a profit, but Leighton decided a few years ago to start booking a profit immediately.
Leighton turned in a net profit of $114 million for the six months, which was within market expectations. One of the issues for investors is its gearing, which at 46 per cent is getting uncomfortably high. Given the company has $840 million of debt due within the next 12 months, it may have been more prudent to reduce its dividend payout.
But then again Leighton has a major shareholder, Hochtief, whose major shareholder, Spain’s ACS, has a mountain of debt and so a dividend payment is welcome.
Leighton has been through a lot in the past 18 months and Tyrwhitt says the company is trying to repair its reputation. It is selling non-core assets, cutting costs and ”resetting the dial on risk” after disastrous write-downs on major projects. It has a long way to go.
Adele Ferguson/Tim Colebatch will be speaking on Victoria at the Crossroads? on August 23-24. For details on the conference, go to vu.edu.au/crossroads
This story Administrator ready to work first appeared on Nanjing Night Net.