Cimic Maintains Fiscal Year Guidance Despite Financial Hit From Troubled Tunnel -- Update

   By Stuart Condie 
 

SYDNEY--Cimic Ltd. maintained its full-year guidance despite forgoing profit margin on a troubled multi billion-dollar tunnel project in Australia's Victoria state.

The engineering and construction group on Friday said it had reached a settlement following a dispute over the West Gate Tunnel project, where costs had spiraled due to the unexpected expense of dealing with contaminated soil dug out during tunneling.

Cimic said a settlement ruled that the total contract value of the project to its 50-50 joint-venture with China Communications Construction Co.-owned John Holland had increased to 8.57 billion Australian dollars (US$6.15 billion) from an original contract value of A$4.99 billion.

Cimic said its JV, which entered arbitration after seeking to declare force majeure in 2020, agreed to reduce its revenue from the project by A$600 million and to forgo profit margin. It expects the financial impact of the settlement and other project risks to be offset by existing provisions and other non-recurring gains.

Cimic maintained its net profit guidance of A$400 million-A$430 million for 12 months through December. It anticipates the same figure on an underlying basis.

"The settlement resolves a long-standing legacy issue that has absorbed significant management time and attention over recent years," Cimic said in a statement. "Cimic is pleased to have achieved this settlement, avoiding further potential legal and other costs, while being able to maintain guidance."

The settlement includes Victoria state contributing A$1.9 billion and toll-road operator Transurban contributing A$2.0 billion to ensure the completion of the project, Cimic said. Tunneling work will start in early 2022 and complete in late 2025, Cimic said.

Transurban, which had opposed the contractors' attempt to declare force majeure, said the JV had sought construction costs significantly higher than those in the settlement.

"We recognize this situation has been disappointing, however we believe this agreement represents the best path forward to deliver the West Gate Tunnel project in the interests of all stakeholders," Transurban Chief Executive Scott Charlton said.

Transurban said $3 billion of its original capital contribution had been deployed so far, with the remainder and A$1.7 billion of its latest contribution not commencing until its 2023 fiscal year.

The other A$300 million costs relate to site activation, insurance and direct project management, it said.

Write to Stuart Condie at [e-mail]

(END) Dow Jones Newswires

December 16, 2021 17:35 ET (22:35 GMT)

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