Leighton’s expectations slashed, Hochtief CEO to retire

A loss of AU$ 427 million (US$ 450.4 million) for Leighton Holdings is expected for the 2010/11 financial year, rather than the profit of AU$ 480 million (US$ 506.3 million ) after tax that had been predicted.

German-based Hochtief issued a profit warning last week when its Australian subsidiary Leighton requested a trading halt in its shares.

Meanwhile, the chairman of the executive board of Hochtief, Dr Herbert Lütkestratkötter, is to retire from the company as of the end of the general shareholders' meeting on May 12, 2011.

His departure is described as being by "mutually amicable agreement", despite Dr Lütkestratkötter being quoted in February as saying that he envisaged remaining at the helm of the company if Spanish firm Actividades des Construcción y Servicios (ACS) were to be successful in its takeover bid for Hochtief.

Leighton said the profits revision was primarily a result of write-backs of expected profit on the Airport Link project in Queensland and the Victorian Desalination Project, and an impairment of Leighton's investment in its Middle East business group, Habtoor Leighton Group (HLG).

Leighton's chief executive, David Stewart, said, "We are acting decisively to deal with write-backs on these two problem projects and with the investment in the Middle East. While it is very frustrating to have to deal with the financial consequences, it does now leave Leighton well positioned to return to more normalised growth and earnings in 2011/12 and beyond."

He said, "On the Airport Link Project in Brisbane, the Thiess John Holland joint venture has continued to encounter design, access, weather, engineering, planning and co-ordination difficulties that have delayed the works and increased the forecast costs to complete the project."

Mr Stewart said, "These extra costs mean that the project is forecast to make a pre-tax loss of approximately AU$ 430 million (US$ 453.2 million).

"At the Victorian Desalination Project, being built at Wonthaggi in Victoria, wet and windy weather has continued and is expected to impact the delivery of the first water which was originally scheduled for 10 November, 2011. However, the full takeover of the plant at mid-2012 remains the target.

"However, poor productivity and the inclement weather have all impacted the construction on the site and, in particular, the reverse osmosis plant. This may trigger a one-off AU$ 15 million (US$ 15.8 million) penalty and extra costs which have been included in our revised forecast."

He said that while some new work had been awarded recently to HLG - including a joint venture to build the Al Mafraq Hospital, and the Abu Dhabi Islamic Bank's new headquarters, both in Abu Dhabi - other opportunities remained slow to come through.

"We have revised down our estimates of the contribution to be booked from the HLG business for the remainder of the year due to provisioning, including receivables."

Mr Stewart said, "Looking to the future, the Leighton Group is in solid shape with most of our major markets - particularly Australian infrastructure and resources, and the bulk of Asia - proving very positive. Our estimate of work in hand at the end of March is a record AU$ 46 billion (US$ 48.5 billion) which has a strong level of inherent profitability."

Dr Lütkestratkötter, who is on the Leighton board as well as being chairman of the executive board of Hochtief, will be succeeded by Dr Frank Stieler, who has been a member of the Hochtief executive board since March 2009.

Hochtief said that despite the economic and financial crisis, Dr Lütkestratkötter's work had been rewarded in the 2010 fiscal year with the company's best ever results. He will remain as advisor to the executive board. He joined Hochtief in 2003 and became deputy chairman of the executive board in 2006. He has been chairman since 2007.