German construction giant Hochtief on Monday cut sharply its 2011 forecasts after a profit warning from Australian unit Leighton, and said that its chief executive was stepping down.
Shares in Hochtief plunged in Frankfurt and were down around 8.7 percent in midday trade. Its market value has slumped by almost a fifth in the past week.
Leighton on Monday slashed its net income forecast for its current financial year to a loss of Aus$427 million (312 million euros, $451 million). Previously it had expected a profit of Aus$480.
It also booked a Aus$200-million write-down on its Middle East joint venture Habtoor Leighton Group, with business there "volatile" and the winning of new projects "slow."
Despite these "very frustrating" issues, Leighton's chief executive David Stewart said it left the firm "well positioned to return to more normalised growth and earnings in 2011/12 and beyond."
Leighton, in which Hochtief holds a 54-percent stake and which has been a major generator of profits for the German firm in recent years, intends to raise Aus$757 million in a capital increase to repair its tattered finances.
Hochtief said that it would fully subscribe to the share sale, meaning that its stake will be unchanged.
Hochtief's chief executive Herbert Luetkestratkoetter said that Leighton had been unlucky and that longer term, the picture remained rosy.
"We see this situation as being exceptional," he told a conference call.
But this did not stop Hochtief saying that it now expects pre-tax profits in 2011 to be around half the 756.6 million euros ($1.1 billion) of 2010, down sharply from its previous forecast of around one billion euros.
Last month it had said that net profits would reach around 600 million euros for the year, but it now says only that they would "exceed" last year's 288.0 million euros.
For 2012 it still expects pretax profit of around one billion euros and net profits of 500 million euros. Its 2013 forecast -- pretax profit one billion euros, net profit 450 million euros -- was also unchanged.
Hochtief, though based in Germany, is hugely dependent on business elsewhere. More than 90 percent of its 47.5 billion euros worth of outstanding orders at the end of 2010 were abroad.
The profit warning came as Hochtief said in a separate statement that Luetkestratkoetter was stepping down at next month's annual shareholders' meeting.
Despite Luetkestratkoetter's wish for Hochtief to remain independent, ACS has built up its stake to almost 40 percent and analysts believe it may use the current share price weakness to snap up more shares and reach 50 percent.
He will be succeeded by Frank Stieler, head of Hochtief's European operations. ACS, which reportedly wants to force out other executives, expressed its "great respect" for Luetkestratkoetter.
Source: AFP Global Edition