A sad end to a once good group of companies. It's a bit disingenuous when it's reported Hochtief are the buyers - we all know it's the Spanish who are behind it. Take CIMIC off the ASX, no more continuous disclosure or ESG reporting - all profits back to Spain, no pesky accounting rules or accountability to anyone but themselves.
Curious fact that Spanish (and Italian - re: Salini/ Webuild) companies are heavily represented in the top ten (it's not because of their engineering expertise) - fuelled by cheap European debt, went on an acquisition spree and netted the likes of Hochtief, Impregelio, Lane, Flatiron et al who were much higher quality companies. How did they do it? Same way CIMIC is being run today - it's a Ponzi scheme - in my opinion.
In the old days, profit was only declared at the end of a successful project, usually in the lead up to practical completion, with an offset for defects liability etc. It only took one bad project to sink nine good ones, the risk/ reward equation in construction has always been unbalanced, largely due to the high amounts of capital deployed and the return on that capital - slender!
Nowadays, the model is all about cash flow, hence the rapacious tendering appetite they all have - so long as cash is coming in faster than it's going out, no worries! Doesn't matter if your project is going down the toilet, so long as new work offsets the loss at the time of reporting.
How else to stop cash going out? Don't pay your sub-contractors and suppliers for 90 days! In other words, let them finance the job for you!
True story - due to the Spanish FY running Jan - Dec, no one (externally) got paid in December, (was carried over into January - merry Christmas!) so the cash in hand at EoFY could be artificially inflated. Add factoring into the mix and all of a sudden the cash position looks great because the factoring liabilities were never reported as bottom line. Factoring only stopped because the Qld government wouldn't allow it on public projects and Greensill collapsed, not out the kindness of CIMIC's hearts. There was a short report a few years ago that pointed out CIMIC's accounting chicanery and they got it dead right.
Cashflow is in my view one of the main reasons why CIMIC sold down 50% of Thiess - the Spanish hate mining due to the heavy up-front capital costs to invest in new plant & equipment that can only be depreciated slowly over the life of the contract. Much better to do a civil job where you can make a big start-up claim at the front end of the job so you're never financing the job with your own money, so to speak. That's why any project manager with an underclaim in their monthly contract valuation reviews was suddenly in the gunsights....!
I still remember when Wal King threatened to do a reverse takeover of Hochtief, as Leighton Holdings was far larger than the German parent - pity he never followed through! Leighton Contractors always did have a reputation for being hard nosed fookers, but it has got so much worse now they are CPB. It goes to show what a big deal Leighton holdings was at the time - that they could weather the storm of major losses from Brisbane Airportlink, Wonthaggi, Gorgon and Al Habtoor-Leighton that would have sent anyone else under.
I'm cynically amused by the fact CIMIC reported a $1.1Bn claim for Gorgon, suggesting they would recover $600M and added it to their revenue position. They settled not so long ago for $70M or thereabouts!!
I think Monodelphous are now the only Australian Tier 1 contractor left. John Holland was sold to the Chinese, Mac Dow is South African, the rest are all Spanish (Acciona - Lend Lease (Baulderstone/ Abbi Group)) and CIMIC (CPB, UGL, Thiess). Salini, Gamuda, Ferrovial (another pack of fookers) and the Koreans are all making inroads into the market putting ever more pressure on margins. I don't think construction will be a lucrative investment moving forward....!
Disclosure - former Thiess/ CPB employee. Writing this has been most therapeutic!
CIM Price at posting:
$22.01 Sentiment: Sell Disclosure: Not Held
