Troubles associated with two projects have impacted the gearing levels financial position of Australian construction giant Leighton Holdings.
Troubles at construction giant Leighton Holdings associated with the Iraq scandal and the Gorgon Jetty project have impacted the group’s financial position and caused gearing levels to shoot up.
Releasing its third quarter results, Leighton says its net profit after tax ($444 million) was up 40 percent compared with the same quarter last year whilst underlying profit after tax jumped 65 percent year-on-year to reach $389 million.
The company also reiterated after-tax profit guidance of $520-$600 million for calendar 2013 subject to market conditions.
But it says gearing levels (liabilities as a percentage of total assets) jumped from 36 percent to 39 percent during the quarter - – above the company’s end of year target of between 25 percent and 35 percent - as challenges associated with the Gorgon Jetty project and the Iraq scandal impacted the trade receivables position.
Troubles with the Gorgon Jetty project revolve around a 2.1 kilometer jetty the company is building for Chevron’s $43 billion Gorgon LNG Project in Western Australia where expected construction costs (now $1.85 billion) have more than doubled and allegations former employees were forced to keep two sets of books to keep up with cost changes on the project have surfaced.
Those in Iraq, meanwhile, revolve around recent allegations in Fairfax Media reports that former Leighton Chief Executive Officer Wal King knew of a $42 million kickback to a firm in Monaco nominated by Iraqi officials who gave Leighton a $750 million oil pipeline contract.
Put together, the Gorgon project and two in the Middle East make up more than $1 billion in underclaims currently being pursued by the company, a News Ltd report said last month.
“We continue to forecast year-end gearing will be within the band of 25-35 per cent however we are currently above where we expected it to be at this stage of the year” company Chief Executive Officer Hamish Tyrwhitt said in a statement. “The final position will depend on the success of our working capital improvement initiatives.”
“Commercial negotiations with the client in regards to the Gorgon Jetty project are on-going and recoveries in Iraq have been delayed, in part, due to the damage created by the recent media campaign conducted by the Fairfax Group.”
Meanwhile, on a more positive note, Tyrwhitt said the company had commenced restructuring initiatives to align the business with addressable markets and had advanced plans for business services and procurement savings.
He said Leighton was focusing on getting the shape of its operations right before it pursues further growth – a focus which partially explains a drop in work in hand from $45.265 billion to $42.425 billion over the past twelve months.
Going forward, Tyrwhitt acknowledges headwinds remain as mining clients seek cost savings but says domestic civil infrastructure opportunities are coming to market faster than expected and long term growth in Asia will underpin opportunities in addressable markets.