preliminary final report & june quarterly update - Leighton Holdings

Notes continued
for the year ended 30 June 2011
9. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Associates
Ownership Interest
Name of entity Principal activity 2011
%
2010
%
Al Habtoor Leighton LLC Construction 45 45
Devine Limited (refer to note 10) Development - 49
Dunsborough Lakes Village Syndicate Development 20 20
Macmahon Holdings Limited
Construction, Contract
19 19
Mining
Metro Trains Melbourne Pty Limited Services 20 20
Oriental Pathways (Agra) Pvt Limited Investment - 49
Oriental Pathways (Indore) Pvt Limited Investment - 49
Sedgman Limited
Construction, Contract
Mining
32 32
Al Habtoor Leighton LLC
During the year the carrying value of the Group’s investment in Al Habtoor Leighton LLC (“HLG”) decreased from $1,144.4
million to $474.9 million (equivalent to US$972.8 million and US$508.2 million). The decrease was due to foreign exchange
revaluation of $226.9 million, operating losses of $155.7 million and an impairment of $286.9 million. The impairment was due
to a downward revision to forecast cash flow, reflecting HLG’s current performance and prevailing market conditions in the
Middle East and Africa region (“MEA”). The recoverable amount was determined using a value in use calculation.
The key assumptions used in the value in use calculation:
Discount rate: 16.0% (June 2010: 14.2%)
Growth rate:
3.0% (June 2010: 3.0%) for cash flows beyond five years. This rate does not exceed the
expected long-term average growth rate for the MEA region.
Legacy project receivables: The economic downturn in the Gulf region continues to delay payment from clients,
particularly for projects in progress at the time the Group invested in HLG. It is assumed
45% of the remaining unprovided legacy project receivables will be collected within 24
months.
Borrowings:
Borrowings obtained to fund working capital will be progressively repaid during the forecast
period.
Forecast cash flow:
The calculation uses five year cash flow projections based on forecasts provided by HLG’s
management, risk adjusted downward by the Group. Cash flows beyond five years are
extrapolated using the estimated growth rate.
The Group has also provided interest free loans of US$117.6 million (30 June 2010: US$32.4 million) equivalent to $109.9
million (30 June 2010: $38.1 million) maturing on 5 September 2012 and interest bearing loans of US$244.9 million (30 June
2010: US$nil) equivalent to $228.9 million (30 June 2010: $nil) maturing on 5 September 2012. These loans are included in
non-current trade and other receivables. Subsequent to reporting date, the Group provided a further interest bearing loan of
US$40.8 million equivalent to $38.1 million.
Leighton Holdings Limited
Appendix 4E and Consolidated Preliminary Final Report for the Year Ended 30 June 2011 17