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Leighton shrugs off desal plant woes

THE construction group Leighton Holdings has maintained its full-year profit guidance despite revealing another $192 million write-down at its troubled Victorian desalination plant.

THE construction group Leighton Holdings has maintained its full-year profit guidance despite revealing another $192 million write-down at its troubled Victorian desalination plant.

The plant, being built by subsidiary Thiess in a joint venture with Degremont, has been beset by extensive delays and cost blowouts, exacerbated by a bitter industrial dispute with the Electrical Trades Union.

The chief executive of Leighton, Hamish Tyrwhitt, said the project had been hampered by poor weather and "a lack of productivity" and that Thiess was seeking a time extension from the Victorian government, strongly indicating it will struggle to meet its deadline of June 2012.

"Along with our joint venture partner we are in discussions with the client about negotiating an extension of time," Mr Tyrwhitt said.

He stopped short of conceding the project would be late, despite the further $192 million write-down working out to be exactly four months' worth of liquidated damages, at $1.6 million a day.

"I'm not saying that at all," he told BusinessDay. "We've given the dates we're working towards and we've got a whole series of things to work towards to make sure we don't fall on our contractual obligations. I'm not going to give you any more information on the breakdown."

The latest charge takes the total write-downs on the desalination project past $750 million in the past year.

Despite the $192 million write-off, Leighton said it would maintain its previously provided profit guidance for an after-tax profit of between $600 million and $650 million, by identifying "gains and opportunities across our portfolio of more than 400 projects including contract mining, offshore oil and gas, and across the civil, building and infrastructure construction markets".

Mr Tyrwhitt said he was disappointed at the continued focus on the troubled contract given "we've got 400 other jobs that are going exceptionally well".

"The project's huge, no one's denying that, [but] can you imagine how I feel the fact that so much of our business is performing in such a positive manner yet we tip it all into one project - it's terribly disappointing," he said.

Mr Tyrwhitt said Leighton expected to report a net profit of about $250 million for the six months to December 31. This excludes the capital gain on the sale of the HWE Iron Ore business, expected to be $225 million.

"The significance of today is we have given guidance to September which is very profitable," he said.

In August, Leighton revealed a further $278 million in write-downs at the desalination plant at Wonthaggi, south-east of Melbourne, but said these were offset by a range of asset sales, tax concessions and by consolidating homebuilder Devine on its balance sheet - prompting criticism from investors and analysts over the quality of the company's earnings result.

A Nomura analyst, Simon Thackray, said that while yesterday's announcement was "confusing" he took some positives from the upbeat outlook from Leighton, excluding the desalination plant.


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