01/05/2020 - 15:28

Monadelphous facing 10% revenue hit

01/05/2020 - 15:28

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Engineering contractor Monadelphous has disclosed multiple problems across its operations, with supply chain issues causing delays on large projects, and contract disputes and low profits forcing a restructure of its water infrastructure business.

Monadelphous chairman John Rubino. Photo: Gabriel Oliveira

Engineering contractor Monadelphous has disclosed multiple problems across its operations, with supply chain issues causing delays on large projects, and contract disputes and low profits forcing a restructure of its water infrastructure business.

The company said the heightened level of uncertainty and disruption in the economy meant it would be unable to provide definitive revenue guidance for the financial year ending June 30 2020.

However, if current activity levels continue to the end of the financial year, it said revenue would be similar to the previous financial year.

By comparison, the company said in February, before the onset of COVID-19, that it anticipated 10 per cent revenue growth this financial year.

It also said today that margins in the second half of the financial year were expected to be significantly challenged as a result of the market disruption.

Monadelphous also disclosed today it would make a $14 million pre-tax provision to cover project underperformance and restructuring costs in its water infrastructure business.

It said several water projects approaching completion had recently experienced an escalation in contract disputes and disappointing levels of profitability.

It has decided to discontinue this line of business in New Zealand and consolidate its east coast engineering construction operations into a single eastern Australian business unit.

The company said the restructure would enable it to reduce costs and focus on improving the quality of its earnings from the water sector.

Monadelphous said the COVID-19 restrictions had resulted in the delay, suspension, deferral or reduction of services across a range of projects and worksites.

Its engineering construction division has experienced supply chain issues causing delays on large resources construction projects currently in progress, as well as the deferral of potential new contract awards.

Its maintenance division has experienced a “material reduction” in activity levels, particularly in fly-in, fly-out operations with customers reducing non-essential work, delaying maintenance expenditure and deferring shutdowns.

The company has responded by implementing a cost reduction plan across the business.

To support this, chairman John Rubino, managing director Rob Velletri and other directors have all agreed to a 30 per cent reduction in salary and fees for the next six months.

The executive and general management teams have agreed to salary reductions for the same period ranging between 10 and 20 per cent.

Mr Velletri said the company would continue to work closely with customers during these challenging and uncertain times.

“Our disciplined and prudent management, loyal workforce and strong balance sheet mean that we are well positioned to deal with the challenges ahead, and the opportunities that will arise in time,” he said.

“I am confident that the actions we have taken to refocus the water infrastructure business will deliver more profitable and sustainable pipeline of opportunities over the longer term.”

The company's shares closed 14 per cent lower today at $9.65.

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