Monadelphous : Reports 2022 Half Year Results

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22 February 2022

MONADELPHOUS REPORTS 2022 HALF YEAR RESULTS

Revenue $1,065 million1, up 12.3 per cent on pcp

- Record half year Maintenance and Industrial Services revenue Net profit after tax $30.1 million, up 17.7 per cent2 on pcp

Secured $860 million of new contracts and extensions

90 per cent owned Chilean business, Buildtek, continues to go from strength-to-strength Strategic focus on people attraction, retention and wellbeing initiatives

Outlook for Monadelphous' core markets is strong

Engineering company Monadelphous Group Limited (ASX: MND) ("the Company") today announced revenue of $1.065 billion1 for the six months ended 31 December 2021, up 12.3 per cent on the prior corresponding period.

Demand for maintenance services increased significantly, with the Company's Maintenance and Industrial Services division achieving a record half year revenue, reflecting a surge in demand for services across both the resources and energy sectors.

Net profit after tax was $30.1 million, an increase of 17.7 per cent2 on the prior corresponding period, and the Board of Directors has declared an interim dividend of 24 cents per share fully franked.

Monadelphous secured around $860 million of new contracts and contract extensions since the beginning of the period across resources, energy, infrastructure and international markets. In Chile, Buildtek continues to go from strength-to-strength, with Monadelphous increasing its shareholding in the business from 75 per cent to 90 per cent during the period.

The Company continued to face labour cost and productivity pressures, with demand for labour in the industry remaining strong and COVID-19 restrictions constraining labour supply and mobility.

Monadelphous will continue to prioritise initiatives that focus on the retention, attraction and wellbeing, both mental and physical, of its people. The implementation of the 'It's Up to Us' campaign, developed during the period, highlights the critical role that every employee plays in ensuring a safe, respectful and inclusive work environment, free of sexual harassment and sexual assault.

Monadelphous Managing Director, Rob Velletri, said the outlook for Monadelphous' core markets is strong.

"The resources sector will continue to provide opportunities, with the Australian iron ore industry remaining particularly buoyant. The demand for battery metals is forecast to remain strong and conditions in the energy sector are expected to continue to show an improving trend. The renewable energy market and developments in the hydrogen sector will also provide opportunities over the longer term.

The shortage of skilled labour will continue to be challenging. The increase in COVID-19 case numbers in Western Australia will also provide further challenges in the short-term.

Monadelphous' reputation and longstanding commitment to delivering safe, reliable and cost competitive solutions, puts it in a strong position to capitalise on these opportunities and navigate the challenging environment that lies ahead", he said.

1. Includes Monadelphous' share of joint venture revenue - refer to page 9 for reconciliation
2. Calculation based on prior corresponding period result, normalised to exclude the reversal of the $6 million research and development tax incentive provision

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2022 HALF YEAR RESULTS

Revenue

Monadelphous recorded revenue for the six months of $1,065 million1, up 12.3 per cent on the previous corresponding period.

The Company continued to experience high levels of demand for its services amid an extraordinary shortfall of available skilled resources. Resources and energy sector activity continued at high levels, particularly in Western Australia.

Demand for maintenance services increased significantly as the industry sought to recover the backlog of work delayed and deferred during the earlier stages of the COVID-19 pandemic. The Company's Maintenance and Industrial Services division achieved a record half year revenue of $596.1 million, up

21.3 per cent on the prior corresponding period, reflecting a surge in demand for services across both the resources and energy sectors, strong growth in the Chilean business and higher levels of activity in Papua New Guinea.

The Engineering Construction division reported revenue of $471.6 million1, successfully completing a number of significant resource construction projects and shutdowns during the period.

Statutory revenue, which excludes Monadelphous' share of revenue from joint ventures, was $994.7 million.

Earnings

Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) for the period was $60.9 million2, giving an EBITDA margin percentage of 5.7 per cent for the six months to 31 December 2021.

Monadelphous continued to experience labour cost and productivity pressures during the period, with labour demands within the industry remaining at very high levels and border restrictions further exacerbating the recruitment and mobilisation of labour.

Net profit after tax was $30.1 million, an increase of 17.7 per cent3 on the prior corresponding period, representing earnings per share of 31.6 cents.

Dividend

The Board of Directors has declared an interim dividend of 24 cents per share fully franked. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the interim dividend.

Strong balance sheet

Monadelphous ended the period with a cash balance of $175.3 million, representing a strong cash flow conversion rate for the six months of 104 per cent.

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.

1. Includes Monadelphous' share of joint venture revenue - refer to page 9 for reconciliation
2. Refer to page 9 for reconciliation of EBITDA
3. Calculation based on prior corresponding period result, normalised to exclude the reversal of the $6 million research and development tax incentive provision

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Strategic Progress

Monadelphous has secured around $860 million of new contracts and contract extensions since the beginning of the period across resources, energy, infrastructure and international markets, with a significant number of new contracts having been awarded in the iron ore sector with BHP and Rio Tinto.

The Company was awarded two contracts with BHP under its existing WA Iron Ore (WAIO) Site Engineering Panel Agreement at the Nelson Point and Jimblebar mine sites. It also secured a 12-month extension to its existing contract with BHP for the provision of general maintenance services for shutdowns, outages and minor capital works at the Mt Whaleback, Jimblebar, Eastern Ridge, Mining Area C, and Yandi and South Flank mine sites.

Monadelphous also secured new packages of work with Rio Tinto, including a construction contract associated with the Marandoo Dewatering Sump Project, as well as several new contracts under its existing Sustaining Capital Projects Panel Agreement at Cape Lambert and East Intercourse Island.

In other resource sectors, the Company was awarded a 12-month extension to its existing mechanical and electrical maintenance, shutdown and project services contract across BHP's Nickel West operations in the Goldfields region of WA, a new three-year general mechanical maintenance services contract with Queensland Alumina Limited at its operations in Gladstone, Queensland, and a 10-month extension to its dragline shutdown and maintenance services contract with BHP Mitsubishi Alliance in the Bowen Basin, Queensland.

The Company's fabrication business, SinoStruct, secured a new four-year agreement to continue supplying wellsite equipment to Origin. The packaged equipment is used to separate, meter and control coal seam gas for the Australia Pacific LNG project in Queensland.

Zenviron, the Company's renewable energy joint venture, was awarded a contract to deliver the Rye Park Wind Farm, which will be the largest constructed in New South Wales. Zenviron will perform approximately $250 million of works under the contract, which is expected to be completed in 2024.

Mondium, the Company's engineering, procurement and construction (EPC) joint venture with Lycopodium, substantially completed construction at Rio Tinto's Western Turner Syncline Phase 2 Project, with first ore successfully achieved in October 2021. Construction of the tailings retreatment plant at Talison Lithium's Greenbushes mine was also substantially completed, with the project in the commissioning phase at the end of the period.

In Chile, Monadelphous' maintenance and construction services business, Buildtek, secured a construction contract with Codelco for work associated with the development of a new underground section of the El Teniente copper mine in Rancagua.

Buildtek continues to go from strength-to-strength, and during the period Monadelphous increased its shareholding in the business to 90 per cent. In the two years since Monadelphous' initial investment, Buildtek has achieved revenue growth of more than 50 per cent and workforce numbers have grown in excess of 75 per cent, to more than 1,400 employees.

Early in 2022, Buildtek secured a number of new packages of work with Codelco, including a three-year contract to provide mine infrastructure maintenance and repairs at the Chuqicamata underground copper mine, and a five-year contract to provide maintenance services at the Radomiro Tomic copper mine. Buildtek was also awarded its first contract with Collahuasi Mining Company to provide modifications to the concentrate distribution system at its Collahuasi Maritime Terminal in Punta Patache, south of Iquique in Chile.

Also subsequent to the end of the period, the Company was awarded:

• A two-year extension to its existing maintenance, shutdown and brownfields project services contract at Woodside's onshore and offshore gas production facilities in the north-west of WA;
• A 12-month extension to its existing services contract at South32's Worsley Alumina Refinery in Collie, WA;
• A three-year extension to its existing operation and maintenance contract with Tronox at the cogeneration power station in Kwinana, near Perth; and
• A multi-disciplinary services contract with Newcrest on the Lihir Front End Recovery Project in Papua New Guinea.

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The Company progressed a number of strategic employee attraction initiatives, including the introduction of employee referral programs for positions in high demand across the industry, the continued use of its specialist, in-house Talent Acquisition team to target senior and strategic roles and the formal launch of its Alumni program to win back departed talent.

Monadelphous' new and improved recruitment, onboarding and talent management system, which will help ensure the Company is set up to efficiently and effectively source, select and mobilise the right people at the right time, is on track to go live later in the year.

Finally, the Company has commenced an organisational review to ensure its structure is appropriately aligned to deliver against its future strategic plans.

Board Changes

During the period, the Company announced a number of changes to its Board and subcommittees. On 11 October 2021, Mr Ric Buratto, a Civil Engineer with more than 45 years of contracting experience in the resources and infrastructure sectors, was appointed as a Non-Executive Director of Monadelphous. Mr Buratto has extensive leadership and management experience in engineering, mining and construction across a range of disciplines including earthworks, marine, civil, structural, mechanical and piping construction, as well as maintenance and shutdown execution. He brings an abundance of industry knowledge, experience and relationships, and complements the existing capabilities of the Board.

At the close of the Company's Annual General Meeting on 23 November 2021, Mr Chris Michelmore retired as a Non-Executive Director following a 14-year term with Monadelphous. Mr Michelmore was a highly valued member of the Board and its subcommittees and contributed significantly to the Company's continued growth and success. The Board thank Mr Michelmore for his loyalty, hard work, dedication and commitment and wish him all the best in his retirement.

Ms Sue Murphy AO replaced Mr Michelmore as Chair of the Company's Remuneration Committee on 1 October 2021, following his resignation from the role on 30 September 2021. Also on 1 October 2021, Ms Murphy replaced Mr Peter Dempsey as Deputy Chair / Lead Independent Non-Executive Director of the Company.

Social Value

Monadelphous is committed to making a positive contribution to the societies and communities in which it operates, focusing its efforts on the key areas of diversity, community and environment.

The Company launched its second Gender Diversity and Inclusion Plan (2021 - 2024) during the period, further demonstrating its strong and ongoing commitment to gender diversity and inclusion. The Plan focuses on ensuring a safe working environment for all employees, the removal of gender-based barriers and extending targets for female candidates in its Vacation and Graduate programs. The Plan contains measurable objectives in respect of key female talent retention and strong participation from women as they enter the Company's workforce in their foundational years.

Monadelphous re-signed its partnerships with the University of Western Australia's Girls in Engineering Program and the University of Queensland's Gender Equity in Engineering Making Sense Program. Both programs aim to promote gender diversity, equity and inclusivity within science, technology, engineering and mathematics (STEM) subjects and encourage female high school students to focus on STEM career pathways.

The Company celebrated NAIDOC Week in July 2021, hosting numerous cultural immersion activities across office and site locations. Monadelphous renewed its successful and mutually beneficial partnership with the Polly Farmer Foundation and, as part of the Agreement, provided students the opportunity to visit universities in Bunbury and Perth, as well as Monadelphous' Bibra Lake facility.

Pleasingly, the Company exceeded its target for the number of Aboriginal and Torres Strait Islander employees onboarded as part of its three-year Indigenous Employment Pathways Program partnership with Rio Tinto. Supported by dedicated coaching and mentoring, the Program aims to increase the number of skilled and tertiary qualified Aboriginal and Torres Strait Islander peoples in the resources industry.

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