LEI leighton holdings limited

This article sums up the current state of affairs...

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    This article sums up the current state of affairs succinctly.

    LEIGHTON Holdings shocked shareholders yesterday by slashing its net profit forecasts for the six months to December 31 by 60 per cent.
    7jan-king

    Leighton Holdings CEO Wal King. Picture: Bob Finlayson

    The move wiped off $150million in profit and $240 million in investment valuations off Australia's biggest listed construction group, as the global financial crisis crunched the company's property division and slashed valuations on its six listed investments.

    The company also warned that net profit for the full year would be down 21 per cent to $480 million, after $240 million in investment write-downs in companies including BrisConnections, RiverCity Motorway and ConnectEast were taken into account.

    Leighton's profit warning is expected to trigger profit downgrades from other companies, as their boards meet to discuss the end-of-year accounts and assess the damage of the global financial crisis on asset values, revenue and profit margins.

    Shares in Leighton dived 11.3 per cent to $25, as investors raised concerns that there could be more bad news to come. One investor said the news came as a complete shock, given the company had sent out a quarterly update on December 22 reaffirming its guidance of a 15 per cent increase in operating profit for the full year.

    Leighton chief executive Wal King blamed the earnings downgrade on the global financial crisis, particularly its impact on property markets, as well as investment valuations.

    He said when the investment write-downs were stripped out, the full-year operating profit was now expected to be up 8 per cent to $650 million, rather than up 15 per cent to $700 million. He said that besides Leighton Properties, the rest of the operating group was performing strongly.

    Leighton Properties is expected to break even this year, after contributing more than $80 million last year. Mr King said the problem with the division was an inability to sell properties.

    "In the property area we are seeing the inability to secure end owners because of the lack of funding," he said.

    Leighton will release its interim results on February 14, with net profit expected to be 60 per cent down to $100 million, from a previous $250 million, and operating profit up 8 per cent to $270 million.

    Mr King said that since September 30, the value of its investments in companies including ConnectEast, RiverCity Motorway, BrisConnections, Devine and Macmahon Holdings had fallen by a further $200 million. All up, the company has written down its investments by $240 million in the past six months.

    It opted to take a $60 million impairment charge on its investments in Devine and Macmahon Holdings, rather than mark them to market. If it had chosen the latter, the write-downs would have been much higher.

    Leighton paid $135 million for its stake in Devine and $123million for its stake in Macmahon. Based on the share price of both companies at the end of December, those investments are now worth $148 million less than their original price.

    Leighton also decided to write off one-third of its investment in BrisConnections, reducing its exposure to $130 million. BrisConnections has been a disaster since listing last year with a first of three $1 instalments. The first instalment is trading at 0.001c a share, and the second instalment, due in April, is not looking healthy.

    Merrill Lynch analyst Kevin O'Connor wrote a prescient report on Leighton on December 17, downgrading the company on the basis it would have to write down its investments and profit margins. In his latest report, Mr O'Connor analysed the company's exposure to the Middle East and contract mining and opted to cut earnings forecasts by 13 per cent in 2009, 23 per cent in 2010 and 24 per cent in 2011.

    He said the company had $8.8 billion of contracts at risk of deferral or cancellation globally.

    At the end of December, Leighton's work in hand has increased to about $37 billion from $35.3 billion at September 30, last year, after winning a few big contracts in the Middle East.

    In the past year, Leighton's share price has fallen more than 55 per cent on fears of its exposure to the global downturn.

    http://www.theaustralian.news.com.au/business/story/0,28124,24880965-36418,00.html
 
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