CIMIC Group Silent On Fresh Cash Flow Doubts
The international, multifaceted contractor CIMIC Group (ASX: CIM) has seen their Thiess staffers angry over not receiving bonuses and laying workers off. As one of Australia’s biggest construction group, layoffs while in the process of completing multi-billion-dollar projects aren’t even the most significant worries over cash flow concerns. Q1 saw an 8 per cent drop in net profits of CIM to AUD166 million. A dispute earlier in the year saw CIM issued with a formal notice from Greensill Capital that it would no longer do business with them. It followed a financial scheme where CIM delayed payment to small suppliers for two months, forcing a discount should the money need to be accessed earlier. This has been suspected as a tactic to boost cashflow artificially.
Controversy follows CIM in the media, with workers from their mining division expecting to receive 2019 bonuses, which makes up 25 per cent of their annual income. However, instead of being rewarded, CIMIC made 70 Thiess workers around Australia redundant in recent months and declined to comment on the issue. Financially speaking, 2019 saw CIM mining operations rose 41 per cent in 2019 to AUD603 million while their construction business fell by 24 per cent to AUD470 million.
Queensland’s AUD5.4 billion Cross River Rail project has seen government minister Kate Jones put CIM’s contractor group CPB Contractors on notice in February, where the group disputed costs. Ms Jones was sure that the existing budget would be enough and would not cost taxpayers anything. Queensland Construction, Forestry Maritime, Mining and Energy calling for Ms Jones to audit the Cross-River Rail project as there have been an alleged 70 health and safety incidents during construction. On another front, Melbourne’s AUD6.7 billion West Gate Tunnel cost hundreds of workers their jobs, escalated to the Victorian government accused CIM’s subsidiary of extorsion.
The company claims to be owed AUD2.6 billion, inclusive of 1.15 billion from Chevron in Western Australia, however, Chevron disputed the claim. The issue is being arbitrated and will have a decision in late 2020. Travelling through murky waters, when asked for a detailed financial report by The Queensland Building and Construction Commission, CPB refused initially. CIM stock has fallen 18 per cent since the beginning of 2020. However, share buybacks are starting to support the price. Grupos ACS, held by German construction group Hochtief spent around EUR103 million in Q1 to attain further ownership of CIM.
One piece of good news that may help the company is the recent government grant aiming to hand out AUD25,000 to first home buyers for housing construction. The plan is geared towards bolstering the construction industry. AUD668 million has been spent on the program, which could see 27,500 people applying for grants. Overall, the company carries an exorbitant amount of debt as well as negative relations with clients around the world. However, lucrative projects have been secured by CIM and if completed, should generate massive wealth for the group.
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