CIMIC Group Strikes Optimistic Tone in AGM
- Company attributes losses to COVID19
- Recovery seems to be underway with several new contracts won
- Company’s dividend policy has been reinstated
CIMIC Group (ASX:CIM) has released disappointing results in its FY2020 report on 10 February 2021. The company reported revenues of $11.4 billion, representing a decrease of 22.4 per cent from the prior corresponding period (pcp) and Underlying Net Profit After Tax (UNPAT) of $600.5 million, a reduction of 25 per cent from the pcp.
The loss was mainly attributed to the COVID19 pandemic, which made it difficult for the company to win new contracts during the year. The poor results prompted Credit Suisse to downgrade their rating of the company to “Neutral” from “Outperform”. On a separate note, Macquarie and UBS chose to maintain their “Neutral” ratings of the company. Both brokerages cited the company’s weak cash flows during the year and the effects of the pandemic as the reasons driving the rating. For reference, operating cash flows were down 66.1 per cent from pcp at $578.6 million.
However, the company has taken measures to strengthen its balance sheet and position itself for growth moving into the future. This includes the sale of 50 per cent of the company’s interest in Thiess, its mining operation based in Queensland, to Elliot Advisors. The transaction was finalised on 31 December 2020 and generated around $2.2 billion in revenue. The proceeds were ostensibly used to compensate for the company’s disappointing cash flows, and CIMIC ended the year with a net cash position of $190 million.
The company is currently in the process of recovering from its weak performance in 2020. It has announced that several new contracts were won in March alone, one of the most recent being an agreement with the Queensland Government to deliver an upgrade to the Bruce Highway. The contract calls for the delivery of 18 kilometres of new highway, 19 bridges and a new interchange and will bring in $289 million in revenue.
In its AGM held today, 14 April, CIMIC hopes to take advantage of similar government contracts in the future and notes that investments into infrastructure construction play a prominent role in the Australian Government’s economic stimulus plans. The company’s long history of reliably executing on these contracts as well as its existing equipment and staff put it in a solid position to win many of these contracts which are expected in the year ahead.
As for its core mining and mineral processing operations, the company maintains a positive outlook moving forward. CIMIC notes that as the global economy continues to recover, demand for the commodities it typically deals in is expected to grow too. Australian export volumes of major commodities are expected to grow by between 4 and 9 per cent over the next two years, further encouraging this outlook.
To sum up, the company has expressed a positive outlook for the future, they have estimated that Net Profit After Tax (NPAT) for 2021 will be in the range of $400 to $430 million, an increase of 8 to 16 per cent over 2020. They have also committed to a consistent dividend payout ratio of 60-65 per cent of NPAT moving forward.