Maurice Blackburn

Leighton - Potential class action for shareholders

Legal action by shareholders against Leighton Holdings Limited (Leighton) is being proposed to recover losses suffered as a result of alleged non-disclosure by Leighton.

Background

On Monday 11 April 2011, Leighton announced a projected $427 million full year loss for the financial year ending 30 June 2011, driven by more than $1.1 billion in write-downs on Brisbane Airport Link, the Victorian Desalination Plant and the Habtoor Leighton Group.

Maurice Blackburn is preparing to commence a class action against Leighton Holdings Limited on behalf of shareholders who purchased or acquired an interest in shares between 2 November 2010 and 11 April 2011.

The share price of Leighton dropped dramatically from a close of $28.94 on 8 April 2011 to a low of $24.93 (a decline of $4.01, or 13.9%) in the trading day following the 11 April 2011 announcement. As recently as 14 February 2011, Leighton had estimated a full year net profit after tax of around $480 million.

It appears Leighton is suggesting that the need for $1.1 billion in write-downs only arose in the space of less than two months.

Proper risk management and adequately functioning reporting systems should have ensured much timelier announcements of difficulties with major projects like the Brisbane Airport Link and the Victorian Desalination Plant. However, shortly after the $1.1 billion dollar write-down on 11 April 2011, Leighton was reported as acknowledging that, as well as not asking enough hard questions when bidding for projects, it was too willing to blithely accept what it had been told by its project managers. Internal reviews came months after analysts had raised questions about these projects.

The Australian Securities and Investment Commission (ASIC) is investigating the profit write-down to determine whether Leighton breached its obligations of disclosure to the market.

The problem projects

Three problematic projects were pinpointed as the source of Leighton's profit downgrade.

1. Brisbane Airport Link

Brisbane Airport Link is a $4.1 billion project being undertaken by Leighton subsidiary Thiess, involving the construction of 15 kilometre of tunnelled motorway and 25 bridges. The resulting tollway will link Brisbane airport with the Brisbane CBD.

Leighton had previously estimated a $407 million profit from this project. This forecast was revised to a pre-tax loss of approximately $430 million, reportedly due to 'design, access, weather, engineering, planning and coordination difficulties that have delayed the works and increased the forecast costs to complete the project'.

Queensland government records and publicly available documents show that Leighton knew as early as April 2009 that adverse geological conditions were causing unexpected delays and cost overruns for tunnelling works in the Brisbane Airport Link project.

2. Victorian Desalination Plant

The Victorian Desalination Plant is a sea water desalination plant currently under construction on the Bass Coast near Wonthaggi, Victoria. The plant site is about 500 metres inland and associated infrastructure will include tunnels connecting the plant to marine intake and discharge structures up to 1.2 kilometres out to sea, an 85 kilometre pipeline to connect the plant to Melbourne's water supply system, and power supply infrastructure for the plant. The plant is intended to provide up to 150 gigalitres of additional water per year, with the potential to expand production to 200 gigalitres per year.

On 30 June 2009, the consortium AquaSure, made up of Leighton subsidiary Thiess and two other companies, was chosen as the winning bidder from a tender process for the construction of the plant.

Leighton reported that its previous profit forecast of $288 million was revised to a mere $6 million, due to 'poor productivity', 'extra staffing costs', 'wet and windy weather' and the increased cost of the final design over the original tender proposal for the plant. It is not clear why any of these matters should not have been known to Leighton by November 2010 and certainly by no later than its February 2011 announcement.

3. Al Habtoor Leighton Group

The international arm of Leighton, Leighton International, owns a 45% share in the Dubai-based construction company Al Habtoor Leighton Group. The group employs around 25,000 people, making it one of the largest construction businesses in the Middle East.

In February 2011, Leighton announced a $299 million write-down in the book value of its investment in Al Habtoor Leighton Group. Less than two months later in the April announcement, a further $320 million write-down was necessary, due to 'deteriorating cashflow from legacy projects'.

How to register

If you are interested in registering to participate in the Leighton class action, fill in the Leighton class action contact us form or contact Adam Kostick  via email or on 1800 810 856.

Our preliminary investigations reveal that if you purchased shares in Leighton between 2 November 2010 and 11 April 2011, you may be able to recover losses suffered as a result of the conduct of Leighton. However, the claim may be stronger in respect of purchases in certain periods.

Registration is free and without obligation. You are not retaining Maurice Blackburn as your lawyer by registering. However, it will ensure that you will be provided with information regarding the progress of the claim and will enable us to provide you with advice regarding whether you should participate in the claim.

This chart tracks the price of Leighton's shares since November 2010

Table 1 - Leighton share price - November 2010 to May 2011