Leighton keen to steady the ship as slow payers take a toll
It has suffered a $600 million rise in the June half alone, with trade and other receivables on its balance sheet hitting $4.4 billion, up from $3.8 billion a year earlier.
About half the total is owed by oil and gas companies, it said, calling the increase "unacceptable". Since then, there has been an improvement, with some payment received for a project in Iraq following a recent visit by the chief executive, Hamish Tyrwhitt. Iraq accounts for two of the top three outstanding contracts where payment is due, the company said.
Chief financial officer Peter Gregg said the largest was the $1.85 billion Gorgon jetty project in Western Australia, with the delay payment "related to time and weather".
In other cases, there are disputes with mine projects in Indonesia, while litigation is under way in Singapore, London and Brisbane, with the first arbitration outcome not expected until later in the year.
Mr Tyrwhitt said LNG projects could take nine to 12 months for payment to be received, for example, while contract variations have slowed payment for other projects.
"It's a difficult problem to solve," Mr Gregg said.
The rise is due partly to larger contract sizes coupled with project delays, with the decline in the value of the Australian dollar also pushing the figure up.
The second-slowest payers are coalminers, partly due to the downturn in coal prices. But the largest area of reluctant payers is in the Middle East and North Africa, with 59 per cent of the amount due not expected to be repaid for longer than two years, up from 51 per cent six months earlier.
Mr Tyrwhitt said "detailed plans" were in place to drive the recovery of receivables, with as much as $500 million of the rise in the amount outstanding expected to be repaid by year end.
"Having provided the hard number, it must have some confidence to achieve this. Nevertheless, it looks an ambitious target," NAB said in a note to clients.
The blowout came as Leighton lifted its June-half net profit to $360.2 million from $105.9 million a year earlier, thanks largely to a $215 million gain from selling off equity in a telecommunications unit. Leighton reiterated its full-year net profit guidance of $520 million to $600 million.
The higher profit saw a hike in the interim dividend to 45¢ from 20¢ paid previously.
As part of a series of measures to double profit margins, Leighton is to establish a centralised unit to own its extensive fleet of equipment, which could take in external shareholders, it said.
"Effectively, we could become a Coates to ourselves," Mr Gregg told analysts, referring to the equipment hire company and the plans for the new internal unit "fleetco".
Frequently Asked Questions about this Article…
Leighton reported a $600 million increase in trade and other receivables in the June half, driven by larger contract sizes, project delays and slower payments from oil and gas customers. A weaker Australian dollar also pushed the receivables figure higher.
Trade and other receivables hit $4.4 billion, up from $3.8 billion a year earlier. The largest single outstanding item is the $1.85 billion Gorgon jetty project in Western Australia, where the payment delay is said to be related to time and weather.
About half of the rise is owed by oil and gas companies, and coalminers are the second-slowest payers partly due to falling coal prices. The company also flagged that clients in the Middle East and North Africa are particularly slow, with a large share of amounts not expected to be repaid for more than two years.
Leighton has implemented detailed plans to recover receivables, including executive engagement (the CEO visited Iraq and some payments were received), pursuing litigation and arbitration in jurisdictions such as Singapore, London and Brisbane, and targeting up to $500 million of the increase to be repaid by year end.
Leighton's CEO said LNG project payments can take nine to 12 months to be received. Contract variations and project delays are also slowing payments on other contracts.
Despite the receivables rise, Leighton lifted its June-half net profit to $360.2 million (from $105.9 million a year earlier), helped by a $215 million gain from selling equity in a telecommunications unit. The company reiterated full-year net profit guidance of $520 million to $600 million and increased the interim dividend to 45 cents from 20 cents.
Leighton plans to establish a centralised unit to own and manage its equipment fleet—referred to as 'fleetco'—which could take in external shareholders. Management says this is part of a series of measures aimed at doubling profit margins.
Yes. Leighton faces disputes with mining projects in Indonesia and has litigation and arbitration underway in Singapore, London and Brisbane. The company said the first arbitration outcome is not expected until later in the year.
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