Cimic’s half-year profit edges up

The engineering giant’s revenue slid in the first half, but Sedgman’s integration boosted profit.

Engineering giant Cimic (CIM) has reported a 3.1 per cent rise in net profit for the first-half despite a sharp fall in revenues.

In an after-market release, the company formerly known as Leighton said its net profit after tax climbed to $265.2 million in the six months to June 30, with earnings per share rising 5 per cent to 79.8 cents.

The increase came as after-tax profit margins jumped 5.4 per cent, which allowed Cimic to offset a sharp 31 per cent drop in revenue to $4.95 billon.

Crucial to the profit rise was the integration of Sedgman into the business.

Cimic completed a purchase of its smaller rival on April 13, with full control coming after it held a 37 per cent stake in Sedgman at the end of the prior half.

In its financial statement the group said full control of Sedgman contributed $157.1 million to its sales, with a $4m boost recorded to profit since the acquisition was sealed.

That boost represents half the after-tax profit rise recorded for the half.

The firm also sharply upgraded the carrying value of the 37 per cent stake in Sedgman it held prior to the takeover to account for a higher valuation for the group. This reconciliation added $46.6 million to its pre-tax profit of $350.7m.

By comparisong, the group’s pre-tax profit in the prior corresponding period came in at $363.6m.

Based on the 30.25 per cent tax rate it recorded for the period, the change to its Sedgman valuation may have added around $32.5m to after-tax earnings.

Stripping out the impact of the Sedgman deal Cimic’s post-tax earnings would have likely slipped around 8.7 per cent compared to last year’s corresponding number.

In a statement accompanying the results, the group said the slide in revenue began to improve through the most recent three months, with a 5.6 per cent rise in the quarter-on-quarter numbers. However, revenues would have been boosted by the full integration of Sedgman.

“The quality of Cimic’s result further improved during the period, reflecting the ongoing benefits of our transformation strategy,” Cimic chief executive Marcelino Fernandez Verdes said.

“Through improvements in project delivery and risk management we steadily increased margins. In the second quarter, our revenue returned to growth showing a positive emerging trend that we expect will continue.”

The firm retained its guidance for full-year net profit after tax of $520m-$580m.

Hidden in its half-year report was the declaration of a $7m impairment to the brand name of property group Devine, in which Cimic holds a 59 per cent stake.

The group said an ongoing strategic review had pushed it to revise the value of the name down from $24m to $17m, with further changes to the carrying value under review.

The troubled property business has reported a series of profit downgrades over the past year and has been shedding assets in recent months.

Cimic added it planned pay a fully franked interim dividend of 48c per share, up 4.3 per cent on the corresponding number last year.