CIMIC Remains Positive Despite Soft First-Quarter Results
Building and construction giant, CIMIC Group has revealed its first-quarter results. Specifically, performance for the period ending 31 March 2020, saw revenue coming in at $3.3 billion, relative to $3.4 billion recorded in the previous corresponding period. This, in part, contributed to the 8 per cent decrease in NPAT to that of $166 million, down from $181 million in Q1 2019. Specifically, the surge in net finance costs was attributed to the increased debt to fund BICC (BIC Contracting) payment. Back in January 2020, CIMIC announced its decision to leave the Middle East and sell off its 45 per cent stake in Dubai-headquartered BICC. Consequently, this resulted in A$1.8 billion write-down.
More notably, analysis from Moody’s reveals that BICC had consistently underperformed throughout 2015-2017 and that CIMIC had supported BICC with multiple loans and financial guarantees. However, the effect does not appear to be one-off. In its more recent results, BICC payments amounting to that of $1,453 million leaves CIMIC in a vulnerable position. This is because, in the last quarter of 2019, CIMIC held close to $832 million in cash. However, as a result of the BICC payment, the company now sees net debt sitting at $991 million. The construction company has also made an unprecedented move in placing its supply chain finance scheme under scrutiny. The decision comes after its supplier, Greensill Capital had provided formal warnings to its clients that it will cease working with customers who extended bill payments beyond the stipulated thirty days.
On a more positive note, CIMIC has been awarded several notable projects. The combined value of work in hand amounts to $36 billion. Additionally, new contracts CIMIC has been awarded include Port Wakefield to Port Augusta Regional Projects Alliance in South Australia as well as maintenance and services contracts within the rail, mining, oil, and gas sectors across the nation. Moving forward, the string of opportunities that are lined up for CIMIC amount to $490 billion – a 14 per cent increase relative to the previous corresponding period. Specifically, close to $400 billion of projects have been lined for 2021.
In order to maintain a competitive edge, the firm has actively engaged in the bidding of high-profile projects. Presently, major projects that CIMIC has been keeping a close watch on include Western Harbour Tunnel and Warringah Freeway Upgrade in New South Wales (NSW), Stage 1 of M6 (Arncliffe to Kogarah) in NSW and Sydney Metro in the Greater West. Yet, the bidding of these projects also extends beyond the shore of Australia. CIMIC is attempting to bid for the expansion works in Hong Kong's Terminal 2, the KPC mining extension in Indonesia and several mining and processing projects in South America. Moving forward, CIMIC is confident in the acceleration of government-related social and economic infrastructure initiatives, will in turn allow the firm to make a steady and gradual recovery.
By Caroline Wong
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