Spencer Street Station, Hilton Hotel impact solid Leighton result

Company Announcements Office
The Australian Stock Exchange Limited
Level 4
20 Bridge Street
Sydney NSW 2000

Re: Spencer Street Station, Hilton Hotel impact solid Leighton result

Dear Sir,

Please find attached a copy of a media release to be issued today by Leighton Holdings Limited and a copy of the presentation that will be given by management of the company.

Yours sincerely,


P.C. JANU
Company Secretary

Spencer Street Station, Hilton Hotel impact solid Leighton result

Issue Date: 6 May 2004
Issued by: Leighton Holdings Limited

Leighton Holdings Limited announced operating profit before tax (unaudited) for the nine months to 31 March 2004 of $120 million and operating profit after tax (unaudited) of $77 million.

The result has been impacted by the recognition of a provision in Leighton Contractors on the Spencer Street Station project in Melbourne and the Sydney Hilton Hotel. In addition, the balance of the investment in the Southland Colliery has been written off.  

The directors now expect to report a profit for the full year in line with last year’s result of around $140 million and to maintain the full year dividend at similar levels to last year. This result will have no impact on the Leighton Notes.

Leighton Holdings’ Chief Executive, Mr Wal King, said the impact of these two building projects on an otherwise strong underlying performance for the Group was extremely disappointing.

“All Group companies are performing strongly, with the exception of the two building projects in Leighton Contractors. In the last quarter we have been awarded over $1 billion of new work taking work in hand to a record $12.8 billion,” Mr King said.

“We are committed to delivering the Spencer Street Station project but are facing significant obstacles. The project is very complicated and is operating under a tight program on a difficult site with restricted working conditions.

“While there have been project management issues which we are addressing, we face problems such as timely access to the site, dealing with the demands of the franchisee train operators and the need to accommodate complex design variations.

“These issues are delaying the project and have had a major impact on Leighton Contractors’ financial performance. We are actively working with the relevant stakeholders to address the obstacles,” said Mr King.

Mr Bob Merkenhof has resigned as Leighton Contractors’ Managing Director and Mr Peter McMorrow has been promoted to replace him. Responsibility for the management of the Spencer Street Station project has been taken out of the Victorian branch and been given to one of Leighton Holdings most senior executives, Mr John Faulkner.

“Changes in scope and difficulties uncovered during refurbishment of the Sydney Hilton Hotel have also affected Leighton Contractors’ results. We are in negotiation with the client to resolve these issues,” said Mr King.

“Within Leighton Contractors, Mr McMorrow has strengthened the risk management team to better evaluate and enforce risk management procedures. Leighton Holdings will work closely with Mr McMorrow to ensure that Group risk management procedures and tender guidelines are properly applied.

“While the performance of the two building projects in Leighton Contractors is disappointing, the rest of the Group had a strong quarter.

“Leighton Contractors’ mining operations and other construction projects proceeded well, with good progress made on the $1.5 billion Westlink M7 joint venture in Sydney. During the period, Leighton Contractors was awarded work on two packages of the Perth-Mandurah rail line, worth in excess of $270 million,” said Mr King.

“John Holland recorded a solid quarter with the award of $250 million of new work including the design and construction of a major water infrastructure project at Rouse Hill in Sydney and a number of new building projects,” he said.

“Xstrata Plc awarded Thiess a $227 million contract to operate the Ravensworth East coal mine in the Hunter Valley and Excel Coal Ltd awarded Thiess a $156 million contract to develop and operate the Wilpinjong Mine in New South Wales.

“In Sydney, Thiess was appointed managing contractor for the $119 million Stage 1 redevelopment of the Westmead Hospital.

“At the Southland Colliery in the Hunter Valley, Thiess has been unable to re-open the mine, which has been placed on care and maintenance. The receivers have called for expressions of interest to purchase the mine and the Group has written-off the balance of its $16 million before tax exposure to the investment. The full year impact is $28 million before tax.

“In Indonesia, Thiess is increasing production at the Kaltim Prima, Senakin and Satui coal mines in Kalimantan where approximately $1.7 billion worth of new work was awarded in October last year.

“We continue to build on our strong position in Asia. Leighton Asia (Northern) was instructed to re-mobilise equipment on the Central Reclamation project in Hong Kong worth $260 million, following a court ruling in favour of the project.  

“The Australian construction market is continuing into a strong upswing, offering the Group a number of opportunities. However, the Group will continue to be selective in tendering for future projects.

“Leighton Holdings is in a very solid position with a strong balance sheet, a diverse mix of projects and a very substantial level of work in hand. We expect to see a moderate improvement in profitability next year and a stronger performance in following years.

Ends

Issued by:
Leighton Holdings Limited
A.C.N. 004 482 982  A.B.N. 57 004 482 982
www.leighton.com.au

For further information:
MR WAL KING
Chief Executive Officer
Ph:  (02) 9925 6912

MR DIETER ADAMSAS
Deputy Chief Executive Officer & CFO
Ph:  (02) 9925 6923

APPENDIX A
KEY PERFORMANCE FEATURES FOR THE 9 MONTHS ENDED MARCH 2004

Financial performance information - $’000
Revenue from ordinary activities
9 months ended 31 March 2004 Unaudited - 4,095,088
9 months ended 31 March 2003 Unaudited - 3,709,876

Operating profit from ordinary activities before income tax
9 months ended 31 March 2004 Unaudited - 120,153
9 months ended 31 March 2003 Unaudited - 178,542

Income tax expense
9 months ended 31 March 2004 Unaudited - (34,975)
9 months ended 31 March 2003 Unaudited - (53,725)

Profit from ordinary activities after tax
9 months ended 31 March 2004 Unaudited - 85,178
9 months ended 31 March 2003 Unaudited - 124,817

Net profit attributed to outside equity interests
9 months ended 31 March 2004 Unaudited - (7,701)
9 months ended 31 March 2003 Unaudited - (7,514)

Net profit attributed to members
9 months ended 31 March 2004 Unaudited - 77,477
9 months ended 31 March 2003 Unaudited - 117,303

Financial position information
Total assets
9 months ended 31 March 2004 Unaudited - 2,225,025
9 months ended 31 March 2003 Unaudited - 2,238,855

Total liabilities
9 months ended 31 March 2004 Unaudited - 1,419,175
9 months ended 31 March 2003 Unaudited - 1,374,663

Net assets
9 months ended 31 March 2004 Unaudited - 805,850
9 months ended 31 March 2003 Unaudited - 864,192

Earnings per share
9 months ended 31 March 2004 Unaudited - 28.3¢
9 months ended 31 March 2003 Unaudited - 43.3¢

Number of employees
9 months ended 31 March 2004 Unaudited - 15,662
9 months ended 31 March 2003 Unaudited - 15,950

Leighton Holdings Limited is the parent company of Australia’s largest project development and contracting group. Founded in 1949, the organisation has grown into a diversified group that includes Thiess, Leighton Contractors, John Holland, Leighton Asia and Leighton Properties. Leighton Group companies undertake activity for public and private sector clients in the engineering and infrastructure, building and property, mining and resources, and operations and maintenance services markets. With around 15,000 employees, the Group’s operations are spread all around the Asia-Pacific region on projects in Australia, Hong Kong, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, China and New Zealand. Leighton Holdings is listed on the Australian Stock Exchange and has its head office in Sydney.