--Leighton Holdings says 1Q profit margin at 2.3% vs. 1.9% in
2012
--Contractor sees margin widening to more than 3% over coming
year
--Warns of fewer contracts in construction, contract mining
--To sell Perth commercial buildings to Dexus
(Adds share price change, background on mining sector and
Leighton's past results, quotes from company executives on the
strategy of boosting margins by focusing on higher-return
projects)
By Rhiannon Hoyle
SYDNEY--Australia's largest construction and mining-services
contractor is planning to boost its profit margin over the coming
year as it targets projects with better returns, reflecting a shift
among the country's miners and contractors for more streamlined
operations in the face of rising costs, weaker commodity prices and
a persistently strong Australian dollar.
Leighton Holdings Ltd. (LEI.AU) increased its profit margin in
the first quarter to 2.3% compared with 1.9% last year.
First-quarter net profit of 123 million Australian dollars (US$127
million) marked a sharp turnaround from a loss of A$80 million a
year earlier, when results were hurt by cost overruns on a toll
road project in Brisbane and a desalination plant in Victoria
state.
The higher average margin is partially a result of a strategic
shift, Chief Executive Hamish Tyrwhitt said in a statement. "We are
not targeting top-line growth," he said. "Rather, we are onboarding
projects with good margins."
Leighton's Deputy CEO and Chief Financial Officer Peter Gregg
told The Wall Street Journal that the contractor plans to widen its
profit margin to "3% and beyond" over the coming year.
"We expect to see continued improvement as we rework our
business model," Mr. Gregg said. The overhaul began last year after
the company in 2011 reported its first net loss in more than two
decades.
Still, Mr. Tyrwhitt warned investors of a drop in the volume of
contract awards in construction and contract mining.
After a decade of exceptionally strong investment in Australia's
mining sector, resources companies have, like Leighton, started to
sharpen their focus to concentrate on more-profitable assets.
Miners have also been asking contractors to trim their prices as
the iron-ore market falls and coal trades around three-year lows.
BHP Billiton Ltd.'s (BHP) metallurgical coal joint venture in
eastern Australia prematurely axed a contract with Leighton last
month, replacing it with a smaller private company to reduce its
costs.
"More marginal mines, where it costs the company more to extract
[than what they get for the resource], are becoming more
problematic," Mr. Gregg said. "If a client can't make money, they
are likely to want to lower costs and will try to do that with a
less-established contract miner."
The company said its pipeline of work stands at A$42.2 billion,
down just A$1.3 billion from December.
Leighton's first-quarter revenue rose to A$5.4 billion from
A$5.1 billion a year earlier, it said in the statement, reaffirming
its full-year profit guidance of A$520 million to A$600
million.
Shares in the company closed 2.2% higher in Sydney trading
compared with a 0.5% rise for the broader market.
Meanwhile, one of Leighton's units, Leighton Properties,
announced Monday that it plans to sell three buildings slated to be
constructed for the Kings Square office property development site
in Perth to Dexus Property Group (DXS.AU) and one of its funds for
A$434.8 million.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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