Better profit, earnings suggest recovery for Leighton

LEIGHTON Holdings has shown the first tangible signs of putting its bad year behind it after flagging stronger profits for the half-year, thanks to an improvement in earnings from its Australian and Asian operations.

LEIGHTON Holdings has shown the first tangible signs of putting its bad year behind it after flagging stronger profits for the half-year, thanks to an improvement in earnings from its Australian and Asian operations.

The profit upgrade gave investors some relief yesterday after a year in which Leighton endured board and management upheaval, profit downgrades, cost blowouts on projects such as Victoria's desalination plant and a fall of more than a third in its share price.

Shares in the construction giant surged more than 4 per cent to $21.44 yesterday, after it lifted guidance for underlying profit after tax by $20 million to $270 million for the six months to December 31.

Leighton has made further write-downs of $49 million after tax on its investment in BrisConnections, which is building Brisbane's Airport Link roadway, and $50 million on its joint venture in the Middle East.

The latest guidance equates to an after-tax

profit of $340 million for

the "transitional" half-year.

It is changing its reporting calendar to align it with German parent Hochtief, which in turn is controlled by Spanish giant Grupo ACS. Leighton's financial year will now end on December 31, rather than the end of June.

Leighton chief executive Hamish Tyrwhitt said the construction of the problem-plagued desalination plant and Airport Link projects had "stabilised". "We are making good progress in bringing them to completion," he said yesterday.

The forecast for a net profit of $340 million for the half includes a pre-tax capital gain of $232 million from the sale of the HWE Mining iron ore business to BHP Billiton last year.

Leighton expects to open the Airport Link to traffic in June, while the desalination plant should be pumping out water by July. The company has previously booked total write-downs of more than $750 million on the desalination plant, which its subsidiary, Thiess, is building as part of a joint venture with Degremont.

Leighton also maintained yesterday its guidance for the full year of between $600 million and $650 million in underlying profit after tax. That forecast excludes the HWE sale and the latest write-downs.

Nomura analyst Simon Thackray said it was good to see Leighton taking the opportunity to deal with issues that had beset it over the past year.

"It has cost shareholders a lot of money in the last 12 months in having to deal with these problems, but they are showing that these major projects are under control," he said. "People will take more comfort in the outlook and the risk."

Mr Thackray said he expected Leighton's cash position to be reasonably strong this year, which would allay concerns that the company would need another capital raising.

"In essence what we are lining up for in calendar year 2012 is a cleaner year where at least our known surprises have been largely dealt with."

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