The BICC write-down – which cost the company $2.7 billion before tax – has hurt CIMIC’s net cash balance, which slid to $831.6 million from $1.62 billion a year earlier.
The company disclosed it pumped $398.6 million into BICC last year to try and keep the troubled joint venture afloat.
CIMIC also revealed for the first time the extent to which it is “reverse factoring”.
The financing schemes, which are also known as supply chain finance, allow companies to delay paying bills to creditors by making arrangements for suppliers to be paid early by financial institutions (for a fee).
Analysts are suspicious of the schemes because companies can use them to delay paying its bills, artificially inflating cash balances and lowering reported debt. Companies also typically account for the arrangements within trade and other payables, allowing them to hide how much money they owe suppliers.
CIMIC disclosed that $851.3 million was reverse factored through supply chain finance schemes at the end of 2019, up from $561 million a year earlier. The contractor, which uses Greensill Capital to finance some schemes, said total trade and other payables rose 6 per cent to $6 billion over the year.
Nigel Stevenson, an analyst with Hong Kong’s GMT Research, said last week that CIMIC should be disclosing how much it was reverse factoring so investors knew exactly how much cash the company was generating.
CIMIC’s total liabilities rose to $10 billion, up 30 per cent on a year earlier. Equity more than halved to $723 million from $1.6 billion a year earlier due to the BICC write-down.
Analysts remain wary about CIMIC’s outlook due to its high levels of receivables – amounts owed to CIMIC but not paid. Receivables rose 14 per cent in 2019 to $3.5 billion, while net contract debtors rose 17 per cent to $1.28 billion.
CIMIC said traditional factoring of receivables – which allows it to approach financiers get paid early for debts owed – was $1.96 billion, up slightly from $1.95 billion a year earlier but well above the $600 million it was factoring in 2017.
CIMIC did not disclose any provisions for the building of Melbourne’s West Gate Tunnel motorway project, where it is now in conflict with toll road group Transurban.
CIMIC’s CPB Contractors has been constructing the tunnel for Transurban in a joint venture with John Holland, but the builders, which have not yet started tunnelling, said last week they had terminated the contract due to soil contamination.
Transurban has disputed the termination, saying the contract remains valid. If the dispute cannot be resolved, it may have to be sorted out in the courts, incurring additional costs.
CIMIC’s annual report showed executive chairman Marcelino Fernandez Verdes received a cash payment of $7.7 million last year after exercising his remaining 240,000 “share appreciation rights” in early February when CIMIC’s stock price was trading at $49.81, near all-time highs.
Mr Fernandez Verdes, who received a $3 million special bonus in 2016, previously cashed in 960,000 rights in 2017. The rights entitle him to receive a cash payment reflecting the increase in CIMIC’s share price from a base price of $17.71 to the price on the trading day before the rights are exercised.
Senior CIMIC executives did not receive short-term bonuses in 2019.
Profit reporting questioned
GMT has also raised questions over how CIMIC recognises profits, arguing that a rapid increase in its net contract debtors following a sharp drop in late 2017 shows the company appears to have taken advantage of new accounting rules to recognise revenue and profits for a second time.
“It is unclear how much of the rapid recovery in unbilled revenue is due to aggressive recognition of new revenue, or the re-recognition of previously recognised revenue,” Mr Stevenson said.
CIMIC, which paid a final dividend of 86¢ a share last year, warned investors last month it would not pay a final dividend. UBS has forecast that CIMIC will not pay a dividend in 2020 so it can strengthen its balance sheet.
CIMIC reported net profits after tax of $800 million, at the bottom end of the $790-$840 million range it had given investors in October. It revised guidance down to $800 million after the $1.8 billion write-down.