CIMIC reviews supply chain financing after pressure

Construction giant CIMIC is reviewing its supply chain financing arrangements after months of controversy over the practice.

CIMIC Group company UGL has been under pressure over supply chain financing

Construction giant CIMIC says it has put its supply chain financing arrangements under review after months of pressure over the controversial practice.

The nation's biggest construction company said on Monday it had dramatically reduced the balance of its supply chain financing arrangements over the March quarter, with the balance of the arrangements falling almost 30 per cent from $851m at the end of December to $598m on March 31.

The company has been under pressure to dump the scheme, in which payment terms are pushed out beyond 30 days and suppliers are asked to take a discount on invoices to get paid quicker, after Rio Tinto and Telstra ditched similar arrangements following revelations in The Australian about their use.

CIMIC’s announcement came after financier Greensill, a major provider of supply chain financing services, confirmed last week it was prepared to dump clients that had payment terms beyond 30 days for small to medium-sized businesses.

Greensill’s confirmation came after The Australian revealed CIMIC subsidiary UGL was still pushing supply chain financing arrangements using its services in late April, months after founder Lex Greensill threatened in February to drop clients who used his company to squeeze small businesses.

Without naming the remaining holdouts, Greensill last Thursday said it had given “formal” notice to the last of its clients that their supply chain financing facilities would be terminated if they were used to push back payment terms to SMEs.

On Monday CIMIC told investors it had wound down its use of the arrangement in the March quarter, and was reviewing its use of supply chain financing arrangements across the group, according to an analyst presentation.

“Supply chain finance balance of $598m versus $851m at December 2019, showing a strong decline during 1Q20; supply chain finance program under review,” the company said.

CIMIC said it had booked a net profit after tax of $166m for the March quarter, on revenue of $3.3bn, slightly down from the $3.4bn in revenue in the first quarter of 2019.

CIMIC group executive chairman Marcelino Fernández Verdes said the outlook for the company’s core markets remained positive, despite the impact of the coronavirus crisis.

“We have kept our projects going and working productively to help support the economy at a time when it’s very much needed,” he said in a statement.

“Notwithstanding the short-term impacts from the evolving COVID-19 situation, the outlook across the group’s core markets remains positive. Once we have better visibility of the consequences of COVID-19 on the business we will provide an update to 2020 profit guidance, if required.”

CIMIC said it had work in hand worth $36.1bn, and had won new work worth $2.5bn in the March period.

CIMIC shares last traded at $23.03.