Leighton falls despite confirming FY guidance

Shares in Leighton Holdings (LEI) have fallen almost 6% despite the contractor saying it was on track to meet its full-year earnings guidance, after posting a solid increase in first half profit.

At 1420 AEST, Leighton shares were 5.62% lower at $16.30, against a flat benchmark. Leighton shares earlier touched a low of $16.13.

Investors could have been spooked by a net reduction of $3.7 billion dollars of contract mining work for the group. The macro outlook for construction and mining services is challenging.

In the six months to June, Leighton posted a net profit attributable to members of the parent entity, of $366.2 million, a significant lift on the $114.6 million profit recorded in the previous corresponding period, when the company was reeling from $1 billion-plus cost blowouts at the Brisbane AirportLink and Victorian desalination plant projects.

Revenue in the period grew 6% to $10.52 billion, slightly stronger than the $9.93 billion recorded in the prior year. Earnings from its mining division fell 13% over the previous half to $2.3 billion, while revenue from its construction contracting operation rose 15% to $7.2 billion.

Leighton chief executive Hamish Tyrwhitt said, “The higher revenue, margin and net profit achieved during the first half shows the clear turnaround of our business. Leighton’s diversity – not just by market sector, geography and brand, but also by contract type and size, activity, and customer – allowed the Group to withstand headwinds in contract mining during the period and enabled us to deliver an improved operating performance."

Mr Tyrwhitt said the group remained on track to deliver a full-year underlying NPAT within the previous guidance range of $520 to $600 million, subject to current market conditions, and flagged further opportunities in Asia.

“The Asia region is projected to experience significant economic expansion over the coming years. This expansion will require considerable infrastructure investment. With 38 years’ experience in Asia we are well positioned, geographically and operationally, in what will be one of the key growth markets of the world during the next 50 years," Mr Tyrwhitt said.

Leighton expected to deliver $200 million on cost savings over fiscal 2013, through a combination of programs including reducing working capital and standardising back office processes across the group.

Mr Tyrwhitt said the group was committed to offloading its troubled Middle Eastern joint venture and was focussed on recovering outstanding receivables. Leighton reaffirmed it planned to have the Habtoor Leighton Group 'IPO-ready' by 2016.

Leighton will pay a 50% franked interim dividend of 45 cents, up from 20 cents in the prior year payable on October 3.