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Construction company Leighton Holdings sounds profit alarm

 

UPDATE: LEIGHTON shares have tumbled more than 7 per cent today after the construction giant warned of further deep losses at Victoria's desalination plant.

 

The company issued this morning said that it expects the project to cost it an extra $106 million before tax this financial year, while the disastrous Brisbane airport road link will cost $146 million more than expected.

 

 

Leighton shares were down 7.4 per cent early this afternoon at $21.99, with the group warning that its profit this year will be up to $250 million lower than previously forecast.

 

The cut in profit expectation from $600-$650 million back to $400-450 million came as little surprise after Leightons went into a voluntary trading halt on Tuesday, prompting analysts to forecast more bad news was imminent.

 

Leightons was prompt in informing the market of its latest problems after being fined $300,000 by the Australian Securities and Investments Commission for failing to warn the market quickly enough last year of similar project problems overseas and at home.

 

In today's announcement, Leighton said it expected to post an underlying profit of $100 million to $150 million in the six months to June 30.

 

Chief executive Hymish Tyrwhitt said he did not expect the desalination plant to be completed before the year's end, with delays caused by flooding of the in and out/take tunnels as well as construction slippage.

 

"In addition, overall productivity issues on the site are impacting forecast costs," he said.

 

"The construction of supporting infrastructure is expected to be completed within the next few weeks."

 

Mr Tywhitt stuck with previous predictions that water will be able to be produced at the plant by mid-year and the three streams to the reverse osmosis plant will be complete by the end of April.

 

He said he expected the Brisbane Airport Link to open by June, but final work had been sped up and extra workers hired at more cost because productivity goals were not being met.

 

"Unseasonably wet weather since the middle of February has also caused delays which impacted the completion of the construction of the tunnel portals and the access ramps and delayed the asphalting of the road," he said.

 

This is the third write-down on the Brisbane airport tunnel, which has cost the company $1 billion, and caused write-down of its stake from $200 million to $63 million.

 

Mr Tyrwhitt said the company had $44.5 billion of work on its books, was in a healthy financial state with no need to raise capital.

 

The delays come after a traumatic few months for Leightons, with it calling in the Federal Police last month to investigate corruption and possible bribery within one of its Asian business units over contracts for an oil facility near the port of Basra, Iraq.

 

This month ASIC fined the company for waiting four weeks in April 2011 to deliver news of a profit write-down connected with the tunnel cost overruns, more cost blowouts with the desalination plant and problems with its Middle Eastern business.

 

That write-down last year turned expectations of a $407 million profit into a $430 million loss.

 
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