CIMIC moves on chief executive Michael Wright after sinking to $1bn annual loss

Australia’s biggest construction group has replaced Michael Wright as chief executive after plunging to a steep annual loss.

Cimic chief executive Michael Wright will move to a new unspecified leadership position in the company with the boss of its CPB Contractors unit, Juan Santamaria, starting in the CEO role on Wednesday.

Australia’s biggest construction company, CIMIC, has replaced its chief executive just two years into the top job after sinking to a $1bn annual loss following a giant writedown on its Middle East operations.

CIMIC chief executive Michael Wright will move to a new unspecified leadership position in the company with the boss of its CPB Contractors unit, Juan Santamaria, starting in the CEO role on Wednesday.

Mr Wright was promoted to CEO in December 2017 but has faced challenging conditions with the CIMIC share price losing nearly half its value and the company in January exiting its Middle East business following a $1.8bn impairment that saw its final dividend scrapped.

The group dived to a 2019 net loss of $1bn on a statutory level while its underlying net profit rose 3 per cent to $800m, excluding the Middle East impairment.

CIMIC injected a further $399m of funding to the Dubai BIC Contracting joint venture last year showing the huge cash drain on its balance sheet.

The company, formerly known as Leighton Holdings, told the market on January 23 it plans to offload its non-controlling 45 per cent stake in BICC previously badged as Al Habtoor Leighton, with a shortlist of bidders drawn up.

The Sydney-based engineering group said it was a prudent call.

Exiting the Middle East “is the appropriate long-term decision for our business and for our shareholders,” CIMIC executive chairman Marcelino Fernandez Verdes said on Tuesday.

CIMIC expects net profit for the 2020 financial year of $810m to $850m.

The contractor also significantly boosted its use of supply chain financing over the year, rising 50 per cent to $851m from $561m the year before.

The financing method has emerged in the spotlight in recent times over concern it was artificially boost working capital figures on corporate balance sheets. CIMIC said the tool enabled it to provide liquidity benefits to suppliers and subcontractors.

The annual result reflected the changing fortunes of its mainstay construction and mining divisions which make up the bulk of its earnings.

Construction profit before tax, excluding the BICC joint venture, fell 24 per cent to $470m from $621m while mining lifted 41 per cent to $603m from $429m.

CIMIC blamed the weak construction result on a decline in Hong Kong building activities and the mix of lower risk projects that it delivered over the 12-month period.

Mining benefited from contract extensions, boosted production and a wider range of resources contracts.

CIMIC, which expanded in recent years by acquiring companies including engineering services company UGL and mineral processing company Sedgman, said operating work in hand increased by 2 per cent to $37.5bn while it won $18bn of new work during the year.

In terms of outlook, it estimates $160bn of contracts are up for grabs in 2020 with a further $380bn pipeline of projects coming to the market from 2021.

A toxic dispute over Melbourne’s $6.7bn West Gate Tunnel has also piled pressure has also piled pressure on CIMIC’s new boss — Mr Santamaria — after CPB and John Holland advised toll road operator Transurban in late January they were terminating the contract over contaminated soil concerns.

CIMIC shares fell 1.2 per cent to $28.17 on Tuesday, with its results released after market close.