CIMIC likely to face fresh questions after recording net profit

CIMIC has recorded a 3 per cent rise in net profit, to $265.2 million, despite revenues falling nearly a third.

NSW Premier Mike Baird, second from right, at Cintra Park, Concord, the site of WestConnex tunnel work being done by CIMIC.

Construction giant CIMIC has recorded a 3 per cent rise in net profit to $265.2 million, despite revenues falling nearly a third in the first six months of this year.

The former Leighton Holdings is facing significant market scrutiny as analysts and investors question its reported profitability and cash flow.

CIMIC, which is majority-owned by Spanish giant Grupo ACS through its subsidiary Hochtief, released its accounts for the period after the end of trade yesterday.

Its shares have fallen by nearly 9 per cent to $33.29 over the past month, after Morgan Stanley ­analysts said recent company ­updates had only given “further weight to our negative stance”.

“We have tried at considerable length, on now two occasions, to reconcile CIMIC’s accounts and to brainstorm all the fundamental levers it could use to deliver its stated improving performance,” Nicholas Robison and Vivienne Lee, analysts at the investment bank, told investors before the ­release of yesterday’s results.

“Despite our efforts, we continue to struggle logically and rationally to reconcile CIMIC’s reported profits with cash flows or, at the very least, confirm that the alternative potentially negative interpretations are less plausible than the positive stance provided by CIMIC.”

Further questions will probably be asked after yesterday’s ­accounts, which show the company recorded a $4m rise in after tax profits through the acquisition of Sedgman, in which it had earlier taken a 37 per cent stake.

The company upgraded the value of its earlier shareholding by about $46.6m, with that contribution offsetting a fall in after tax earnings of 8.7 per cent.

However, CIMIC chief executive Marcelino Fernandez Verdes said the result showed continued improvements for the company, with revenue growth returning in the past three months.

“Through improvements in project delivery and risk management we steadily increased margins,” he said in a statement.

The company, which has ­retained full-year earnings guidance of between $520m and $580m, said it had secured $6.8 billion in new works since the start of January, with total work in hand standing at $29.6bn.

Revenue fell 31 per cent to $4.95bn, while profits before tax declined 5 per cent to $244.6m.

The company’s net cash ­fell nearly $700m to $1.66bn, with net cash flows from operating activities collapsing from $494.1m to $74.2m when compared with the previous corresponding period.

The release of the damning Morgan Stanley report pushed CIMIC shares to $30.25 two weeks ago, but they have since risen on the announcement of a tunnel project in Hong Kong.

The report said there was evidence to suggest the company had projects in the first quarter of the year that “could have ­experi­enced cash and profit challenges”.

The Weekend Australian ­revealed in May that a slew of contractors working on the first stage of the $15bn WestConnex infrastructure project in Sydney had not been paid or had their payments delayed without any reasons being specified.