LEIGHTON Holdings has delivered some long-awaited good news to shareholders, announcing a return to profitability and more intense focus on growth this year as it looks to leave its troubled past behind.
Announcing its first calendar full-year result after changing balance dates, the chief executive of the nation’s biggest construction company Hamish Tyrwhitt yesterday told investors the company was continuing its strategy to “stabilise, rebase and grow”, preparing for offshore opportunities in the years ahead.
“Our driver really remains the urbanisation of China and the urbanisation in Asia continuing to see opportunities around energy, around infrastructure. We continue to see long term demand for our commodities and resources,” Mr Tyrwhitt said.
The comments were made as Leighton delivered its results for the year to December 31, elements of which variously both surprised and disappointed analysts.
“As expected, the bear case for this stock has not played out,” Commonwealth Bank analyst Ben Brownette said yesterday. “The issues are now clearly behind the company.”
Leighton posted $448 million in underlying net profit after tax, at the upper end of guidance of between $400m and $450m — a sharp turnaround from a $229m loss in the prior period. The news sent Leighton shares surging by more than 11 per cent to close at $23.14. A steady final dividend of 60c was declared, making an annual payout of 80c.
“I’m proud of what the team has achieved,” Mr Tyrwhitt said.
“It just shows the resilience of Leighton and what 56,000 staff can do when they focus and get down to business.”
The comments come after the completion of Airport Link and the Victorian Desalination Plant, which accrued almost $2 billion in losses and caused months of bad headlines, forcing Leighton to downgrade earlier guidance of $600m-$650m.
“We’re establishing solid foundations and transforming the business to better manage the risks and the span of control,” Mr Tyrwhitt said. “I’m still cautiously optimistic on the future but we’re on a journey and we’ve taken another step forward.
“We’re moving into a much more proactive space than a reactive space that we were 12 months ago.”
Most pleasing to observers was the improved balance sheet position of $1.8bn in cash while gearing was reduced from 46 per cent to 35 per cent, driven by a healthier underlying operating profit as well as the return of $223m cash collateral that was previously held as security against external borrowings of the troubled Habtoor Leighton Group in the Middle East.
Despite HLG collecting “a portion of the monies outstanding” on legacy projects, Leighton faced another $20m impairment as its operating cashflow forecast was downgraded, contributing in part to another $82m writedown on the group’s carrying value in the Middle East joint venture, which fell to $298m.
Mr Tyrwhitt said the Middle East remained a key priority as the group sought it reduce its exposure and ensure that HLG was “IPO-ready” by 2016. “We didn’t draw down on our stand-by facility we put in place last year and that was forecast to be drawn down . . . we’ve diversified the offerings we had and we’ve made really good progress,” he said.
But Leighton missed market expectations with its 2013 guidance for underlying net profit after tax that it has in a range of $520m and $600m.
“We’re still in this reshaping and rebuilding phase and we’ve made it clear in the process of doing that that we still have risks in the business,” Mr Tyrwhitt said. “We need to be able to implement changes and the changes potentially cost money and we’ve given a guidance that we believe is appropriate with the volatility and potential headwinds.”
Mr Brownette said the 2013 guidance was soft, as expected. “This reflects a provision rebuild and some headwinds from contracts but 2014 should be much better and we expect the stock to significantly rerate,” he said.
But CIMB analyst Andrew Hodge said the outlook was disappointing: “Expect to see 5-10 per cent downgrades for the stock in FY13,” he said in a client note.
“I don’t believe the telco sale is in this number and this will reduce by another 5 per cent when the sale is completed.”
Leighton’s work in hand also saw a decline of just over a $1bn, totalling $43.5bn for the period, in part due to the slowdown in the mining sector as well as the lost work in hand following last year’s sale of Thiess Waste Management. But Mr Tyrwhitt reiterated the firm’s commitment to net margin expansion and being selective on projects as part of its improved tendering processes.
However, Leighton warned that falling commodity prices could affect it this year.