CIMIC’s Growth an “Illusion” as Market Value Plunges $1.6bn


Construction giant CIMIC has confirmed it is “in compliance with its disclosure obligations” after stocks tumbled by 7% in just two days – representing a decline in value to $14.6 billion on Tuesday, down from $16.2 billion on Friday.

The disastrous market loss comes after Hong Kong research firm GMT made explosive claims that CIMIC had inflated its reported pre-tax profits by approximately 100% across the past two years – equivalent to AU$1 billion.

CIMIC, which was acquired by Spain’s ACS construction in 2014 via its German subsidiary Hochtief, issued a statement to the ASX on Monday in light of growing commentary on the GMT report – and its sharply declining market value.

“CIMIC notes that its annual reports and full year financial results are fully audited and in compliance with the accounting standards,” the statement read.

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GMT points to an aggressive style of revenue recognition as a major source of CIMIC’s profit inflation. Relying heavily on unbilled revenue as seen on CIMIC’s balance sheet, the company has boosted pre-tax profits by up to $400 million in each of the last two years as a result.

Another alleged source of profit inflation comes from CIMIC’s purchase of UGL in 2016, which immediately resulted in a large reduction in UGL’s net assets and a large jump in profits following the acquisition.

UGL’s net assets prior to the acquisition were listed at $331 million, and yet this had become $484 million in liabilities that CIMIC reported just months later

GMT also claims that CIMIC ceased recognising the losses from its Middle Eastern joint venture BICC (formerly HLG Contracting). GMT suggests that this tactic resulted in a significant swing in joint venture profits within 12 months – recording a profit of $59 million in 2018, up from a $50 million loss the year before. No information is available regarding BICC’s performance in 2018.

The AFR previously reported a potential inconsistency in CIMIC’s financial accounts in 2016, when Morgan Stanley suggested that the group’s reported profits may have sat 30% higher than its underlying profits.

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Header image source: CIMIC Group

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