Believe it or not, but Leighton Holdings, the country’s major contractor, reckons its looking to Asia to find new sources of sustainable growth. That’s despite the region being its earliest offshore area for growth, especially in Hong Kong and Indonesia.
But after doing its shirt on an ill-timed and uncontrolled expansion into the Middle East and India, Leighton, which has also been subjected to lengthy management and boardroom instability in the last two years, wants some quiet time in which to rebuild its order book and its reputation among investors.
The company’s annual meeting in Sydney yesterday was told (http://www.leighton.com.au/__data/assets/pdf_file/0012/21252/200513_mr.pdf) by new chairman Bob Humphris and his CEO, Hamish Tyrwhitt that Leighton was looking to lift its game.
The company also maintained its full-year net profit guidance of between $520 million and $600 million for the year to December.
Given the slowdown in mining services, where Leighton operates in Australia, that’s a confident call from the company.
If that can be held without any of the downgrades that have characterised the past couple of years, then the company will be going some way to meeting investor scepticism about its management and performance.
This affirmation of profit guidance was liked by the market and the shares rose nearly 4%, or 67c to $18.68.
LEI – A Volatile Two Years
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Mr Tyrwhitt told shareholders yesterday: ‘‘It is clear that we need to move our focus from an Australian-centric approach to one where we export our skills to markets where our services are valued and where we can add value.
‘‘So where do we see our sustainable growth coming from? Without doubt, Asia is the fastest growing region in the world and is expected to contribute around half of global GDP by 2030 and two-thirds by 2060.’’
That’s ironic given the huge volumes of construction work Leighton has been responsible for in Hong Kong over the last 20 years or more, and the work in Indonesia, especially as mining contractors.
Mr Tyrwhitt said Leighton was uniquely placed as the only construction company with a full footprint across Asia and it would protect its strong position. Further into the future, he said the Group would expand into growing regions such as South East Asia, India and Sub-Saharan Africa.
But the CEO also said that Leighton sees a chance of more work and involvement in infrastructure in Australia (not forgetting that it has been involved in a number of projects, good and bad). The worst recently seems to have been the huge desalination plant built in Victoria that cost the company tens of millions of dollars in losses, as well as a tunnel in Sydney and a toll road in Brisbane.
As well, the company moved into communications through optic fibre cable construction and ownership with mixed results and has now exited much of the sector.
But its work building roads, buildings, etc around the country has been its strengths and makes up much of its $42.2 billion contract backlog.
‘‘There’s no doubt Australia needs to invest more in infrastructure if we are going to remain globally competitive and so maintain our standard of living,’’ Mr Tyrwhitt told the meeting.‘‘However, spending on infrastructure has fallen behind with increasing stresses on federal and state governments to balance their budgets".
Mr Tyrwhitt told the meeting that Leighton’s diversity of projects meant it had relatively small exposure to the construction of coal and iron ore projects, preventing it from downgrading its profit forecast like its peers.
‘‘There has been a lot of media on the cancellation or delay to large resource-related capital projects in Australia,’’ Mr Tyrwhitt said. ‘‘Leighton earned approximately 5 per cent of total revenue last year from the construction of coal and iron ore projects. "This level of involvement is not likely to fall. We will always be working on infrastructure expansion in the resource sector.’’
Helping lower that share was the move by BHP Billiton earlier this year to terminate early a contract at its Queensland coal operations with Leighton. That cost the company $260 million in lost revenue, but it will get compensation for the early ending of the deal. Earlier this year Leighton bought 10 construction contracts in northern Australia with its 19% owned associate, Macmahon Holdings.
That deal has helped Macmahon shareholdings recover. Last week it told the ASX that the sale of its construction arm to Leighton Holdings had removed any uncertainty and risk over the company.
It said its mining business was on track to deliver earnings guidance and had $3.5 billion in work on its order books and a healthy $2.5 billion in contracts in its tendering pipeline.
It predicted its revenue for full-year 2014 would be around $1.4 billion. Earlier this year warned it would post a loss of up to $20 million this financial year because of troubles in the now sold construction business.
Back at the Leighton AGM and governance issues raised their head. Earlier this year a number of directors quit over what they saw was interference from the company’s parent,Hochtief, which controls around 55% of Leighton. Hochtief in turn is controlled by ACS of Spain.
Chairman Stephen Johns and fellow independent directors Wayne Osborn and Ian Macfarlane resigned in March in protest of what they perceived as board interference from Hochtief.
New chairman Bob Humphris and his deputy Paula Dwyer, both independent directors, had also raised concerns with the other three but decided to remain on the board. Now the hunt is on for new boardroom blood, led by a committee chaired by Ms Dwyer.
Mr Humprhis told the meeting that Hochtief had publicly confirmed the current governance principles relating to Leighton’s continued independence, and said that he had been personally assured by ‘‘representatives of Hochtief that they do not intend to depart from these principles’’.
As a result of the boardroom row, only seven directors fronted the meeting. The company normally has 12 (which seems a little large).
