Shares in construction and contracting group, CIMIC (The old Leighton Holdings) took a hammering yesterday (like those of Downer EDI did) after it revealed a big clean up and review of its businesses that will see it take a $1.8 billion dollar post-tax impairment on a Middle Eastern company.
The pre-tax impairment will be more than $2 billion.
Investors took fright at the write-down news and the shares fell more than 20% at one stage before settling down 19.7% at $28.06.
That was after the shares rose 2% on Wednesday on news of a contract win. That optimism didn’t last on Thursday in the wake of an update on the completion of a strategic review of Middle Eastern group, BIC Contracting (BICC).
BICC is a company operating in the Middle East in which CIMIC holds a 45% non-controlling interest.
As part of the review, CIMIC says a confidential M&A process in respect of its financial investment in BICC is continuing with potential buyers for all or part of BICC.
CIMIC said it has decided to exit the Middle East and re-focus its resources on its major markets including Australia, New Zealand, and the Asia Pacific, where the Spanish-controlled group sees more growth opportunities.
But to exit the business means a big financial cleanup and a big bill for the company which is majority-owned by the big Spanish contractor and services group, ACS.
That will see CIMIC taking a one-off, post-tax impact of around $1.8 billion in for the financial year ending December 2019. This represents all of CIMIC’s exposure in relation to BICC.
That will more than wipe out 2019’s profit for CIMIC which reported an after-tax interim profit of $367 million for 2019.
Excluding the BICC clean up and write down, CIMIC expects to report a 2019 net after-tax profit of around $800 million.
The group’s 2019 results are expected on February 4 and will see a bottom-line loss of around $1 billion.
As a consequence of the cleanup, CIMIC will not be paying a final dividend for 2019 because it has to have cash on hand to meet bills as part of the exit from the Middle East.
The company said yesterday there will be “an expected cash outlay net of tax of around $700 million during 2020, as CIMIC’s financial guarantees of certain BICC liabilities materialise. CIMIC has committed facilities and cash available to meet all obligations as required.”