The Motley Fool

Monadelphous hits all-time revenue and earnings high

When many other mining related service and engineering companies have hit the wall, and have sagging profits or massive write-downs from the commodities downturn, Monadelphous (ASX: MND) had a record year for revenue and profits.

Revenue came in at $2.61 billion, up 38% from $1.9 billion. Likewise, net profit was up 13.8% from $137.3 million to $156.3 million. This was the twelfth year of year-on-year profit growth.

Slight profit compression occurred, with net profit margin slipping from 6.64% to about 6%, due to tightening market conditions and some works underperformance.

The company’s engineering business covers mining, the energy sector (coal, gas and oil) and infrastructure involving water supplies and waste treatment.

When the mining slowdown became severe for other companies, Monadelphous had its oil and gas project works to help take up the slack and even provide more revenue than ever before. Infrastructure projects were for both private companies and government organisations.

New contracts worth $1.3 billion were awarded to the company within iron ore and coal sectors, including new and extended contracts for maintenance in oil and gas markets.

When mining companies like BHP Billiton (ASX: BHP) or Rio Tinto (ASX: RIO) cut back on production or even decide to mothball a mining site until better economic times, the company gets maintenance and shutdown works awards, keeping staff busy when others are reducing numbers. Employee workforce increased from 6,105 to 7,418 during this year.

The report stated that this period of abnormal growth reflected the unprecedented volume of construction contracts from resources and energy developments in their own execution phase. During the year, workforce numbers went as high as 8,700, requiring great effort by the company to keep up with work demands.

To meet the demands of more trained staff, it opened a training facility in WA to provide nationally accredited construction skills and competency training services. This shows that it is looking to expand its business and is expecting more industry growth in the mid-term.

The gas and oil industry needs for maintenance services provided the company with two new LNG service contracts, making the company a maintenance service provider for all four of the major onshore LNG plants in Australia.

The company’s outlook for next year is one of internal consolidation. The strong growth in the oil and gas industry offset the lower activity levels in the mining industry. Customers are focusing on cost reduction and cutting back on discretionary capital spending.

It is realistically projecting that revenue levels will moderate, and may not reach the same levels as in this year, so it is also reassessing its work and division structure for cost savings and business streamlining.

A final dividend of 75 cents per share fully franked was declared, bringing the full-year dividend to 137 cps fully franked.

Foolish takeaway

With many companies having to severely cut back on staff and work, companies like Monadelphous show how, just like investors, diversification of work over several different sectors can help take out the extreme peaks and troughs of a business cycle in what are regularly cyclical in nature already.

Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

NEW. The Motley Fool AU Releases Five Cheap and Good Stocks to Buy for 2020 and beyond!….

Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading over 40% off it's high, all while offering a fully franked dividend yield over 3%...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click here or the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.