SYDNEY--Leighton Holdings Ltd. (LEI.AU) said its fiscal
first-half profit more than tripled as Australia's largest
construction and mining-services contractor continued to rebuild
its balance sheet.
Leighton has made improving margins a priority as it works to
regain credibility with investors after several difficult years,
marred by delays and cost overruns on major Australian
infrastructure projects. It's also had to overcome a rift with
majority shareholder Hochtief AG (HOT.XE), which led to the
resignation of three directors in March.
The country's miners and contractors are moving to simplify
their operations in the face of rising costs, weaker commodity
prices and a historically strong Australian dollar. That's posing a
challenge to companies like Leighton as a decadelong boom in
resources investment comes to an end.
Sydney-based Leighton reported a net profit of 366.2 million
Australian dollars (US$333.4 million) for the six months through
June, up from A$114.6 million a year earlier. The result was
boosted by A$115 million from the sale of a majority stake in some
of the group's telecoms assets, the company said.
Leighton's earnings have been weighed in recent years by cost
blowouts relating to an airport toll road project in Brisbane and a
desalination plant in the state of Victoria. A downturn in the
Middle East construction market in the aftermath of the global
financial crisis also resulted in writedowns.
In a sign that Leighton thinks these problems are behind it, the
company more than doubled its interim dividend to 45 cents a
share.
The company said it had increased its underlying net profit
margin in the first half to 2.2%, compared with 1.0% during the
same period last year.
After a decade of exceptionally strong investment in Australia's
mining sector, resources companies like Leighton have started to
concentrate on more-profitable assets. "The group also focused on
improving its tendering discipline and increasing its win rate to
reduce tender costs," Leighton said in a regulatory filing.
Still, a push by Australia's mining companies for better returns
has also presented challenges for Leighton. Miners have asked
contractors to trim their prices following volatility in the
iron-ore market and a sharp fall in coal prices to multiyear lows.
Earlier this year, BHP Billiton Ltd.'s (BHP) metallurgical coal
joint venture in eastern Australia prematurely axed a contract with
Leighton, replacing it with a smaller private company to reduce its
costs.
Leighton said tough macroeconomic conditions and volatile
commodity prices had hurt its contract mining business, driving
down its pipeline of work by 20%.
While resources spending remains at record levels in Australia,
the government has warned investment is peaking and may face a
sharp decline in the next five years. Overall, Leighton reported a
A$40.13 billion pipeline of work, down from A$43.49 billion at the
end of December.
The A$5.8 billion-valued company has also faced a turbulent year
in the boardroom. In March, Leighton was rocked by the resignation
of three board members, including its former chairman, exposing
differences between the Australian construction company's top ranks
and majority shareholder Hochtief AG (HOT.XE).
Hochtief has since increased its stake in Leighton to 55.0% from
53.5%, and indicated it wants to buy more shares in the Australian
construction company.
"Hochtief's additional investment demonstrates its confidence in
the group's business model, management and outlook for the
business," Leighton said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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