Monadelphous Engineers a Solid Result

December half year earnings for engineering contractor Monadelphous rose more than 17% despite continuing labour shortages in the WA resource sector which increased pressures on margins.

Despite the pressures, the company remains upbeat about the rest of the year and set interim dividend at an unchanged 24 cents per share.

The 17.7% gain in profits to $30.1 million was earned off the back of an 12% rise in revenue for the half to $1.065 billion.

The Perth-based company singled out continuing labour cost and productivity pressures as headaches, along with strong demand for labour and COVID-19 restrictions constraining supply and mobility.

Monadelphous CEO Rob Velletri said the skilled labour shortage would continue to be challenging.

“The increase in COVID-19 case numbers in WA will also provide further challenges in the short term,” he said. The company has a workforce of 7,347 including contractors.

Revenue from Monadelphous’ maintenance division rose 21% to an all-time high as the industry sought to recover the backlog of work delayed during the earlier stages of the COVID-19 pandemic in 2020-21.

Mr Velletri said the resources sector would continue to provide opportunities with a buoyant iron ore sector, strong demand for battery minerals, and longer-term growth from renewable energy and hydrogen.

Monadelphous said it had secured about $860 million of new contracts and contract extensions during the half.

The company’s clients include BHP’s and Rio Tinto’s WA iron ore operations and LNG producers INPEX and Woodside, where Monadelphous performs plant maintenance.

Monadelphous said it ended the half with a cash balance of $175.3 million.

More importantly the company revealed that a review of its capital structure and the board had decided no change was needed.

“During the period, the Board of Directors conducted a comprehensive review to assess the appropriateness of the Company’s capital structure with the assistance of a global investment bank.

“Following the review, the Board concluded that the Company’s current capital structure was appropriate and reflects the necessary level of tolerance to accommodate the current operating environment, the changing market conditions and the medium-term outlook for the business.

“The strength of Monadelphous’ balance sheet provides the Company with the financial capacity required to effectively navigate the pandemic and successfully manage the associated unpredictable and volatile economic impacts, as well as take advantage of potential investment opportunities which may arise,” the statement concluded.

Investors gave the results a tick (and no doubt the results of the review of the capital structure) and pushed the shares up 10.5% to $10.99 on a day when Russian antics in Ukraine sparked a major slump in the wider market.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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